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THE FINANCES: 



PANICS AND SPKCIK-l'AYMKNTS. 



"Fads speaJc" 









PHILADELPHIA: 
JOHN CAMPBELL & SON, 

740 SANSOM ST. 

1874. 






Entened, according to Act of Congress, in the year 1874, by 

J. TV. SCHUCKERS, 

In the Office of the Librarian of Congress at Washington. 



A. 0. BBYSON AND CO., 
S rBRBOTTPSBS. 



UBARS *lHD DUSKNBEKY, 

PBIK ii as 



THE WRITER'S PREFACE. 



Some few pages of this pamphlet were read before the 
Society of "The Monks" at Philadelphia and— very much 
enlarged— is published by request (not of " The Monks," how- 
ever, but of others), with which I comply both willingly and 
with reluctance. 

The fundamental and dominating problem in respect of a 
return to specie-payments is stated at page (50 and again at 
page 69. It is included in the question— At what volume of 
circulating notes can the banks of the country resume and sus- 
tain a condition of specie-payments ? for I assume that the 
-control of our paper issues will not be left with the Treasury 
Department after resumption is effected. That we can support 
a convertible note circulation of $354,000,000, the present 
authorized issues of the National Banks, is overwhelmingly 
improbable. No commercial nation ever has done it and at 
this period of the world's experience there is no probability 
that any commercial nation can do it. The history of paper 
money in both England and France is conclusive upon the 
point. THe necessary implication is that we must contract the 
circulation to the whole extent of the legal tender issues and 
of the fractional currency — a sum equal to $420,000,000 ; my 
own judgment being (I submit it with diffidence though dog- 
matic in my conviction upon the subject) that we will have to 

(iii) 



iv Preface. 

contract still further and reduce even the present aggregate 
of the National Bank circulation in order permanently to sus- 
tain specie-payments. 

What the consequences of so tremendous a contraction must 
be reason and history both attest. 

The attention of the reader is called to the note, on page 2& 
extracted from the sixth volume of Tooke's invaluable " His- 
tory of Prices." It is important in connection 'with the alle- 
gation that^our " shocking bad currency" is peculiarly provo- 
cative of speculation, fluctuation and panic. Our currency 
system is no doubt most defective in many particulars and 
capable of great improvements, but it is false and unfair to 
charge upon it evils which are equally chargeable upon a 
mixed currency or an exclusively metallic system as the con- 
clusions of the Lords' Committee warrant me in saying. 



THE FINANCES. 



Those who heave watched the course of political 
events through a long course of years cannot fail to 
have observed that there are two kinds of political 
issues : the false and the true. It often happens that 
to avoid or obscure the true one the politicians seek to 
force one which is false. An instance of this happened 
about the time of the passage of the Kansas-Nebraska 
Act, when an effort was made to divert public atten- 
tion from the slavery question by inciting fictitious 
alarms of which Knownothingism was the fruit. 
Though partially successful at the beginning it was a 
disastrous failure at the end. The true issue asserted 
itself despite all the efforts of the politicians to sup- 
press it. The alarm about a " third term " seems to 
partake of the same fictitious nature : for it was and 
is an impossible danger 

The True Issue. 
The real issues are two : The Finances and the 
pacification of the South. If we deal' wisely with the 
first the second will settle itself; for it was the wise 
saying of a profound thinker (and I beg your thought- 
ful attention to this) that the welfare and progress of 
the Commonwealth depend more upon social ameliora- 
tion than upon political change. If we can revive the 
industrial activity of the nation we may rationally 

(5) 



6 The Finances, 

hope for contentment and peace, but if the existing 
commercial and industrial depression is to be much 

longer continued race-hostilities will surely grow in 
intensity and danger. Nothing is more certain than 
that social and political disorders are the inevitable 
fruits of industrial inactivity. 

The State of the Country. 
A multitude of workmen are idle who would gladly 
work if they could find work to do. Some are wil- 
fully idle of course, and some are unwisely so. hut the 
vast mass of those unemployed are idle upon compul- 
sion. The New York World of the 12th of Novem- 
ber said seventy thousand people were out of work in 
that city, and there are probably fifty thousand in 
Philadelphia. One hundred and twenty-five thousand 
people in two cities without labour in the midst of 
winter ! The heart shrinks at contemplation of the 
loss and suffering and physical deterioration which this 
mere statement involves. But the worst is not told : 
in every city and village of the country and among 
agriculturists more or less labour is idle: New York 
and Philadelphia being exaggerated types only of the 
condition prevailing everywhere throughout the whole 
Republic. Fifty years ago, Lord Brougham, in the 
course of a debate in Parliament on the- repeal of the 
"Orders in Council of ISPJ." speaking of the Ameri- 
cans said — " Rut I freely acknowledge that the sight 
of one part of America brings to me feelings of envy 
as an Englishman: I mean the happy distinction that. 
over the whole extent of that boundless Continent, 



The Finances* 7 

from Canada to the Gulf of Mexico and from the 
Atlantic Ocean westward to the Mississippi, not one 
pauper is to be found /" Alas : fifty years have wrought 
a dreadful change among us, for poverty keeps steady 
pace with the progress of wealth. 

Hie Panic. 

But we all know the cause of our present evils and 
Bufferings; we owe them to the sudden and calamitous 
panic of September 1ST3. It is not worth while to 
indulge long dissertations upon the causes of the finan- 
cial convulsions called ''panics;" what the people ask 
is relief from the evils and distresses the panic 
entailed. 

The Importance of the Finances. 

"The French finances," writes a distinguished 
French author, "■connect themselves, on all sides, with 
all our past and present history; with all our history, 
monarchical and republican, political and religious, 
economic and social ; with all our victories as well as 
all our disasters, with all the aspects and all the pro- 
gress oi' our administration, with all the conquests of 
our industry, of our agriculture and our commerce, 
with all the achievements of our art ; in a word, with 
all the epochs which have made famous the name of 
France. For it must he said, and said whatever men 
may think of it, that the finances touch ( r< wything, help 
everything, conclude everything. They are in the state 
what blood is in the veins of the human body; if it 
circulates, it carries along with it motion and life, if it 



8 The Finances. 

stops paralysis and death supervene. Good organiza- 
tion, good administration, or good condition of the 
finances, exert, therefore, imperiously everywhere and 
always, a positive, healthful and vivifying action" 
(mark ! the writer from whom I am quoting does not 
say influence, but Action" :) " upon the government of a 
country and the prosperity of its people." 

Yes ! on every side the finances connect themselves 
with all our destiny, public and private, social and 
political. American progress has been advanced or 
retarded as the condition of the finances has been 
sound or disordered. We have found it so both in 
war and peace. 

Three Great Names. 

According to the French writer from whom I 
have just quoted — there are in the history of France 
three great names, Jacques Coeur, Colbert, Napoleon I., 
imperishably connected with the finances at different 
epochs ; so three great names, as immortal as the his- 
tory of our own country, connect themselves with 
American financial administration — they are those of 
Robert Morris, Alexander Hamilton, and Salmon 
Portland Chase. Each of these has in his turn ren- 
dered illustrious services. 

But this is a digression. 

The Remedy for the Panic. 

At the beginning, the remedy for the panic was 
simple and obvious, and the public opinion of the 
country unmistakably pointed to its exercise. That 
remedy was a temporary enlargement of the cur- 



The Finances. 9 

rency, and was warranted not only by public opinion, 
but also by ample experience both in Europe and 
America. The government declined to adopt it, 
partly because of the clamour against " inflation," but 
chiefly upon the ground that such an enlargement 
would be a violation of law. A truly great statesman, 
recognising the necessity, would have taken the re- 
sponsibility of the violation — if any was involved — and 
trusted to the justice of his countrymen for a vindica- 
tion of his act. But the Federal Government was not 
in the hands of a statesman at that critical time, and 
the counsels of bankers and politicians were preferred 
to the lessons of experience and a pronounced public 
sentiment. The effects of this policy of iwimasterly 
inactivity were easily predicted. They involved all 
the social evils we now suffer, and the retirement of 
the Republican party from the control of the govern- 
ment. In two or three private letters to the Comp- 
troller of the Currency — written in the sorest pressure 
of the panic — I ventured to warn that gentleman of 
the political consequences sure to result if General 
Grant's administration should adopt the policy of in- 
action. General Grant's administration did adopt the 
policy of inaction, and the country justly holds the 
party of which he is the recognised head responsible 
for his acts. 

An Unforeseen Consequence. 

Yes, the remedy at the beginning was simple and 
obvious, and would have been supported by the suf- 
frages of the people. The temporary expansion ne- 
cessary to allay the panic might easily have been 



10 Fimw s 

ed, immediately upon the restoration of confi- 
dence, without difficulty or disturbance, and without 
action by t ss ; but the remedy being rejected, 

the panic took its course and soon reacted upon 
the Federal treasury. The revenues declined, and 

the time of the meeting of Congress, the Dreasury 
Department was unable to meet current demands. 
It was the labouring OX that had been cored in Sep- 
tember; the Federal hull felt the wound in Decern! 
and. presto; that which had been declared illegal 
when the motive was relief to the labour of the coun- 
try, became quite lawful when the motive \\..- office- 
holders' salaries! The ••reserve" was drawn upon 
without scruple, and $26,000,000 of •• unconstitu- 
tional" local tenders wove Boated into the circulation. 
One-half this sum, judiciously used at the proper time, 

lid have saved the needless and long-protracted and 
aggravated suffering of the past year; but emitted at 
the time it was, and under the existing circumstances 
of the country, it exerted no stimulating effect upon 
trade. The real effect of it was to add 126,000,000 
to the currency ; for, after a great deal of wrang 
in Congress, this worse than useless expansion 
made a permanent part of the circulation. Here 
an unforeseen consequence to the statesmanship of the 
panic, but it was perfectly natural and scarcely a. 
able, and among the wise might sen rint a moral, 

Rmitt 

I repeat that the remedy for the pa the 

beginning, was not or. is, but was warrai 

by a pronounced public sentiment and by ample | \- 



The Fin a n ecs. 11 

perience both at home and abroad, [f financial ex- 
perience has proved anything, indeed, it is the absolute 
truth of this proposition. The historical proof is fa- 
miliar to students of monetary science 5 nevertheless, 

1 choose to reproduce here brief sketches of English 
panics before and since resumption of cash-payments 
l.\ the Bank of England in L821. 

"In L792," says Mr. R. II. Patterson, 1 "trade 
had been unusually if not excessively brisk; and, 
at the same time, as the year progressed political 
agitation assumed formidable proportions. Acts ofriot 
and insurrection took place, and when war wit h France 
was declared at the end of the year, the public dis- 
quiet amounted almost to panic. Bankruptcies had 
doubled in number, and the declaration of war gave 
a shock to credit which was already staggering. On 
the L5th of February, 1793, a house of considerable 
magnitude failed, and on the L9th the Bank of England 
refused the paper of Lane & Company, who stopped 
next morning with liabilities to the amount of nearly 
a million sterling ($5,000,000). In the meantime the 
panic spread to the bankers. The run commenced on 
the banks of Newcastle, which were perfectly solvent, 
hut which, in consequence of the run upon them, were 
obliged to stop payment. The panic immediately 
spread throughout the country. In the west of Scot- 
land, also, there was the greatest distress from the total 
destruction of credit, which calamity was produced by 
the refusal of the Glasgow, Paisley and Greenock banks 

to discount. The pressure extended also to the London 
hanks. The extraordinary state of credit (to speak 

1 '•Economy of Capital," |>. 88. 



12 The Finances. 

correctly, the total collapse of credit) had obliged every 
person connected with trade and money transactions 
to gather in and husband every resource to meet all 
demands, — thereby, of course, greatly lessening the 
ordinary circulation. In these circumstances, the Gov- 
ernment urged the Bank (of England) to come for- 
ward and support credit, but the Bank resolutely de- 
clined. When the Bank adopted this perverse course, 
universal failure seemed imminent. The Government, 
however, with Pitt at its head, wisely took the matter 
into its own hands ; and, acting upon the advice of 
Sir John Sinclair, made an issue of Exchequer bills, 
which acted like magic in sustaining credit and at 
once put an end to the crisis. The amount authorized 
to be issued was 5,000,000?. in sums of 100/., 50/. and 
20/., but not half of that amount (only 2,202,000/.) 
was needed, and the whole of this sum was repaid. 

" The panic of 1797 was produced entirely by politi- 
cal causes. There had been no overtrading of any 
kind. In December '96 took place the French expe- 
dition under Hoche for the invasion of Ireland, and 
in the February following a French frigate landed 
twelve hundred men on the Welsh coast At this 
time the Banks at Newcastle had a more than ordinary 
demand upon them for cash, because, in addition to 
the manufactories and collieries, the number of troops 
stationed in that part of the country had been con- 
siderably augmented. The banks had imported an 
extra amount of cash to meet their expenses, and 
were negotiating for more when the panic broke upon 
them and compelled them to stop. The news of the 
stoppage of the Newcastle banks spread like wild-fire 



Tlw Finances. 13 

throughout the country and soon reached the Metrop- 
olis. The drain upon the Bank of England now be- 
came a run, till on the 25th of February the specie 
was reduced to 1,272,000/. Before this, the directors 
of the Bank, in a state of utter bewilderment at the 
circumstances of the country, had used the most vio- 
lent efforts to contract their issues. In five weeks 
they had reduced them by nearly 2,000,000/. But 
even this gave no true idea of the curtailment of mer- 
cantile accommodation, for the private bankers were 
obliged, for their own security, to follow the ex- 
ample of the Bank. Next day (Sunday) to prevent 
the total stoppage of the Bank, an Order in Council 
was issued authorizing it to suspend cash payments. 
The relief produced on the instant by the definite de- 
termination to suspend cash payments and the issues 
of paper was very great : within one week the Bank 
had increased its accommodation by nearly 2,000,000/. 
sterling. The notes were taken as readily by every 
one when it was known there was no gold to cash, them 
as when the Bank was abundantly supplied with 
specie." 1 

Announcement of the suspension of specie payments 
was made on Monday the 26th of February, and so 
far as the convertibility of its notes was concerned, the 
Bank remained in a state of suspension until May 
1821, a period substantially of twenty-five years. 
There was of course more or less financial disturbance 



1 From R. II. Patterson's " Economy of Capital," pp. 88, et seq* 
Mr. Patterson quotes largely, however, from Mr. II. D. MacLeod's 
" Theory and Practice of Banking," a book of great interest and value, 
in which the reader will iind a vast amount of information. 



14 The Finances. 

during this long interval, partly because of the vary- 
ing fortunes of war and partly from other causes, and 
bank-notes depreciated, although the friends of the 
paper-money system alleged that the price of bullion 
had risen, because of government demand for its use in 
foreign countries, which had drained the kingdom of 
almost its whole supply. Atone time the difference 
between coin and bank-notes was as great as 40 per 
cent. A fierce controversy arose between the bullion- 
ists and the paper-money advocates, which is not ended 
even yet, In 1810 the famous Bullion Committee was 
appointed, the general purpose of which was an inquiry 
into the currency and foreign exchanges. This Com- 
mittee examined a great number of witnesses — bank 
directors, private bankers, merchants, and others — 
and it is not a little remarkable that the larger nam- 
ber of them, and they were all practical men, opposed 
the allegation that bank-notes were depreciated. It is 
my purpose, however, to refer (in this place) to one 
of its conclusions only, which was, that when a great 
and sudden failure of confidence occurred, a judicious 
increase of accommodation — in other words, an ex- 
pansion of the currency — icas the proper remedy. 

In 1819, in order to put the currency question "at 
rest forever," as a distinguished bullionist alleged, the 
Bank was required by Act of Parliament to resume 
payment of its notes in standard coin by a specified 
date in 1823. This act was passed without a dissent- 
ing voice, an unbelieving member of the House of 
Commons being induced to withdraw, it is said, in 
order that the affirmative vote might be unanimous. 
The exultation of the friends of the measure was ex- 



The Finances. 15 

cessive, and they predicted with a boundless confidence 
that its adoption would put an end to all financial dis- 
orders and embarrassments, and inaugurate the era of 
lasting and universal prosperity. 

The Bank was able to anticipate the time fixed by 
the Act of Parliament, and actual resumption took 
place in 1821, under what circumstances and with 
what immediately attending disasters, I shall detail 
hereafter. 

But the act which was to set the "currency ques- 
tion at rest forever," utterly failed of its object, for 
within three years — that is in 1820 — occurred one of 
the most destructive financial convulsions known to 
English history. It is commonly called the panic. 

In February of that year (1825), the King congrat- 
ulated his people upon their prosperity, and a distin- 
guished member of his Council declared that " the 
•country was reaping in honour and repose all that had 
been sown in courage, constancy and wisdom." 

At the time of these utterances the bullion in the 
Bank of England amounted to nearly fifty millions of 
.dollars, and its notes circulating among the people ag- 
gregated about one hundred millions. The bullion of 
the Bank, however, was steadily diminishing (and had 
been during the whole of the year 1824), to meet de- 
mands for export; but instead of reducing its emissions 
the Bank enlarged them, and persisted in this until 
May, when it suddenly reversed its policy and began 
a course of contraction. This did not stop the drain 
of bullion, but rather accelerated it, and by the end 
of October the whole stock in possession of the Bank 
was reduced to a sum very slightly over fifteen millions 



16 The Finances. 

of dollars. The pressure was new extreme, and £\ery 
hour added to its severity. On the 29th of November 
announcement was made of the failure of two great 
banking establishments in the country, and by the 3d 
of December (Saturday) the panic had fairly set in, 
and all London was thrown into the most violent 
alarm and consternation. Sunday intervened, and hopes 
were entertained that on Monday a better feeling would 
prevail, but Monday came without abatement of the 
terror of Saturday. The excitement was wilder than 
ever, and under its influence the great city house of 
Sir Peter Pole & Co. stopped. The announcement of 
this event was followed by a run upon all the London 
bankers, and several gave way. The Bank of England 
was itself upon the very verge of suspension, for at 
the end of the week, — that is on the 10th of Decem- 
ber, — the bullion in its vaults was reduced to ten mil- 
lions of dollars, and by the following Wednesday to a 
sum little more than six millions, with a continuing 
demand. During Monday and Tuesday of that me- 
morable and most disastrous week (as was afterward 
said in the House of Commons), it was impossible to 
convert into money to any extent the best securities 
of the government. Sales could not be made of 
Exchequer bills, nor of Bank or East India stock, 
nor of the public funds : men would not part with 
ready money upon any terms nor for any security. 
Before the crisis ended, sixty-three country banks sus- 
pended, and many mercantile houses of entire solvency 
succumbed to the pressure. 

By what means was this devastating financial storm 
arrested ? They were very simple. 



Tht Finances, 17 

TIk crisis was at its height from Monday the 12th 
to Saturday the 17th of December. Up to the night 
of Wednesday the Bank of England had restricted its 
issues : but at that time, becoming sensible of its error 
and resolved to make common cause with the country, 
the Bank reversed its policy, and between Wednesday 
and Saturday issued circulating notes to an amount 
exceeding 825,000,000! "This audacious policy," 
says Mr. MacLeod, " was crowned with the most com- 
plete success : the panic was stayed almost immediately. 
.... All contemporary evidence proves that it was 
this profuse issue of 5,000,0007. of paper in a few days 
that stayed the panic. If the Bank had persevered 
in the restrictive policy three days longer, the total 
and entire destruction of commercial credit would in- 
fallibly have ensued." 

This is, in brief, the history of the great and terrible 
convulsion of 1825. It happened under a specie-pay- 
ing system, and within three years of that memorable 
enactment of the British Parliament which was to 
•• restore soundness and stability to the circulation" and 
make panics impossible. The efficacy of the remedy 
adopted was most astonishing : the panic was not only 
allayed, but banking and commercial credit was im- 
mediately restored, trade was revived, and a needless 
and protracted period of suffering was averted. 

Similar but less disastrous panics happened in 1836 
and in 1839, and from the latter year to the end of 
the year 1843, a general commercial stagnation pre- 
vailed throughout all England, accompanied by a cor- 
responding degree of suffering among the labouring 
population. The calamities the country had undergone 
2 



18 The Finances. 

in 1825, 1835-6 and 1839, and the long-continued 
distress from 1830 to the end of the year 1843. were 
commonly attributed to the power of the bank to over- 
issue notes, notwithstanding the obligation to redeem 

?/i coin. To prevent overissue) and in order that 
the paper circulation should at no time be greater in 
amount than the circulation would be if it were composed 
exclusively of coin. Sir Robert Peel proposed, in 1844. 
a restrict ion upon the power of the Bank to issue 
notes, by separating it into two departments, respect- 
ively of issue ami banking, with distinct offices for 
each and different systems o( accounts. The issue 
department was to be allowed to emit 14.000.000/. 
notes upon government securities, and any amount in 
excess of J4.0O0.O0U/. if represented pound for pound 
by bullion actually in the vaults of the Bank; although 
all the notes o( the Bank, whether issued upon the 
foundation of public securities or against bullion, were 
to be payable in coin upon demand. The plan was 
adopted, and there was a wide concurrence in the be- 
lief that its effect would be to prevent overissues, 
speculation, and recurring panics. The plan was cer- 
tainly as near an approximation to a " perfect paper- 
money system." as human ingenuity was likely to 
devise: but its projectors ami advocates forgot that the 
\ast credit system which is at once the glory and mis- 
fortune of our modern civilization and the source of all 
speculation and panic, will prevail as widely under a 
metallic currency as under one purely oi' paper. The 
proof was not far distant. 

''The next great crisis,'* says Mr. Patterson. 1 "was 

1 "Economy of Capital," p. L03, et sc<). 



The Fill ((tiers. 19 

that of 1847 ; previous to which, by the Act of 1844, 
all liberty of action had been taken from the Bank in 
regard to its issues of notes, which were made entirely 
dependent upon the amount of specie in its possession. 
The extreme pressure in this crisis began on the 23d 
of September, when the Bank adopted more stringent 
measures for curtailing the demand upon its resources. 
On the 15th of October it refused to make advances 
either on government stock or on Exchequer bills : the 
consequence of which was that the other banks has- 
tened to sell their public securities, and for their own 
safety hoarded the notes received in payment — thus 
still further reducing the circulation. What they 
could not get from the Bank in advances on their se- 
curities, the}' got by the sale of them ; so that the 
only effect of the Bank's restrictive policy was to create 
panic and hoarding, which immensely increased the 
difficulties of its position. Everything became worse 
day by day. Several large banks stopped payment in 
Liverpool, Manchester, Newcastle and other towns, 
and the drain upon the Bank of England became 
greater than ever. As the whole commercial world 
knew that the resources of its banking department 
were being rapidly exhausted, a complete panic seized 
upon it. A cessation of private discounts took place. 
No one would part with money or notes in his posses- 
sion. On the 23d of October the terrible game was 
played out. The Bank Act had to be suspended, and 
the Queen's government, with a view to restore confi- 
dence to the mercantile community, recommended the 
Bank directors to enlarge the amount of their discounts 
and advances (that is, to expand the currency!) What 



20 The Finances. 

followed? The government letter was made public 
about one o'clock on Monday the 25th, and no sooner 
was this done than the panic vanished like a dream. 
Mr. Gurney stated that it produced its effects in ten 
minutes! No sooner was it known that notes might 
be had than the want of them ceased." The whole 
amount of notes issued was under 400,000Z. 

" The crisis of 1847 was the most severe which had 
occurred, but it was surpassed in disaster by that which 
followed ten years after. In 1857 a wave from the 
American crisis crossed the Atlantic, and produced an 
equal crisis in our own Islands." After describing the 
causes of this panic, Mr. Patterson proceeds: " No 
crisis was ever so unexpected ; none ever culminated 
so rapidly or proved so destructive. Credit was shaken, 
and a run commenced upon several banks which were 
known or supposed to be connected with the suspended 
firms. The Liverpool Borough Bank, closely con- 
nected with the American trade, stopped payment. 
Denniston & Co., likewise closely connected with the 
American trade, had also to suspend, with liabilities to 
the amount of 2,143,701/. ; and after reeling for some 
time under the run made upon it, the Western Bant 
of Scotland likewise closed its doors. Great exertion; 
were made in Glasgow by the authorities and leading 
merchants to arrest the panic : the other Scotch 
banks, alarmed at the aspect of affairs, and urged 
thereto by the community, at length came forward to 
check the distrust, and gave their united and most 
energetic support to some of their number which were 
run upon. Thursday the 12th was the last day of the 
panic in Scotland. 



The Finances. 21 

" Meanwhile the crisis had spread to London. The 
Bank had raised its rate rapidly from 5 to 10 per cent. ; 
and as all the discount houses in London ceased to 
make advances, the accommodation given (or which 
under the act could be given) by the Bank, was totally 
inadequate. The more tight the money market be- 
came, the faster were gold and notes withdrawn from 
the Bank. Every bank or firm sold its securities, and 
kept beside it the gold or notes thus obtained. In 
order to meet the run upon them, the Scotch banks 
had ordered about 1,000,000?. sterling in sovereigns 
from London — which they obtained by selling a por- 
tion of their government stock (which, being readily 
convertible, they always hold in reserve for such 
emergencies), and thereafter getting the notes received 
in payment cashed at the Bank of England. The 
English and Irish banks took similar precautions; and 
altogether, in consequence of the panic, the banks 
found it necessary to keep about them three millions 
more than their ordinary amount of specie. On Wed- 
nesday, the 11 th, the great discount house of Sander- 
son & Co. was forced to suspend, with liabilities to the 
amount of 5,298,990?. sterling. The great American 
firm of Peabody & Co. also was known to be in extre- 
mis. It was perfectly solvent, but, like other firms, it 
had for the time to lie out of its money, and thus was 
unable to meet its engagements. It was of the utmost 
importance to support this firm, as it was known that 
its fall would bring down many others, and establish 
a general panic in London. Peabody & Co. required 
assistance to the extent of 800,000?. ; but the Bank, 
fettered by the Act of 1844, had not this sum to ad- 



22 The Finances, 

vanee. But do sooner was the act suspended (on the 
afternoon of the 12th), than the Bank" was enabled 
bo extend its issues; " the required sum was advanced 
to Peabody & Co., and in like manner aid was ex- 
tended to many other firms, and to some English 
banks. In London. Liverpool, Manchester, Birming- 
ham, indeed, all over the country, as every one will 
remember and as is proved by the trade-reports now 
lying before us, the beneficial effect produced by the 
suspension of the act, and the resolution of the Rink to 
extend its issues, was instantaneous" 1 

••This authorization," says Mr. Gilbart/ "which 
was given on the 12th, at once quieted the public 
mind; but there was this notable difference between 
the effects of the first suspension of the Act in 1S47 
and of the present, that whereas in that year the mere 
notice of suspension had operated as a charm, and 
notes to the amount of only 400.000/. were actually 
issued in excess of the statutory limit, in 1S-37 the 
Bank issued, from November 13th to the end of the 

'• The niunlier of solvent, indeed very wealthy firms." says Mr. 
Patterson, " which had to suspend during this crisis was remarkably 
s;reat ; and the fact throws an important light upon the character of 
such crises, and upon the best means of averting them. The suspension 
of Denniston & Co.. tor example, which was one of the first houses to 
gm w;iv. was so entirely artificial, that, after providing for every shil- 
ling of their liabilities, the accountant of the estate declared them pos- 
sessed of a surplus of nearly three-quarters of a million. The suspen- 
sion of Nay lor. Vickers A Co. was of a similar character : the firm bar- 
ing assets to discharge all their debts with a balaivee in their favor of 
0.'. Sanderson £ Co.. with liabilities to the enormous amount of 
O,298,000L, paid in full and resumed business ; and a large portion of 
the other suspended firms were proved iu like mauner to be perfectly 
solveut." 

i " The Principles and Practice of Banking," p. 881. 



The Finances. 23 

month, no less than 6,776,000/. of notes beyond the 
limit (14,475,000/. ; now raised to 15,000,000/.) tixed 
by the act." 

The panic of 1866 still further illustrates the princi- 
ple under consideration. The difficulties which brought 
on the great convulsion of May 186(5 began in Jan- 
uary; in February the failure of the "Joint Stock 
Discount Company created a general alarm, for the 
reason," says Mr. Henry Durning MacLeod, " that 
the doings of this company were merely a type of a 
large amount of business which was known to have 
been engaged in by numerous other companies. In 
March, Barned's Bank at Liverpool stopped payment, 
with liabilitiesof upwards of three and a half millions. 
Several great railway contractors also suspended, in- 
volving in discredit the companies with whom they 
were known to have financed. 

" On the 3d of May the Bank of England raised 
its discount to seven per cent. Every one now felt 
that the long-dreaded crisis was at last come. The 
air was thick with rumours, and it was now known that 
it was merely a question of weeks, perhaps of days, 
when the storm should burst. On the 8th of May the 
rate was raised to eight per cent On the after- 
noon of Thursday, May 10th, the terrible news spread 
through London that the great establishment of Orer- 
end, Gurney & Co. had stopped payment, with liabili- 
ties exceeding 10,000,000/. It was the most stupen- 
dous failure that ever took place in the city. The 
news was spread after banking hours, but every one 
could foresee what the effect would be next morning. 
The Chancellor of the Exchequer said the next evening 



24 The Fin<m s, 

in the House of Commons that the excitement was 
without a parallel." The morning papers o( Friday, 
the L lth, contained an announcement o( the stoppage, 
which created a prodigious excitement. "The I lth 
of May." said the distinguished French economist, M. 
Wolowski, "will bo long remembered in London: it 
was a day of distress and terror, and seemed to be the 
signal of a general ruin. No one was sure of any one 
else, nor even of himself, the moment it became known 
that the great house had closed its doors. It was by 
hundreds of millions that the engagements of that 
gigantic financial firm, whose fall made the very ground 
tremble, were counted. The settlement oi^ a great 
portion o( the commerce of the world is concen- 
trated in England; the settlement of the commerce 
o( England was concentrated in London, and the 
house of Overend, Cuirney & Co. held one of the tore- 
most places among the small number of establish- 
ments in whose houses is the settlement of the com- 
merce of the city. For a long time it enjoyed im- 
mense credit ; it disposed of enormous securities : a 
renown more than European had multiplied the number 
of its customers and augmented the amount of deposits 
confided to it. Thus, the fatal Friday which witnessed 
the disaster continues to be popularly known as ' Over- 
end Friday.' " 

On the evening of that "Black Friday" announce- 
ment was made that the Ministry, following the prece- 
dents ot' 1^4 7 and 1857, had informed the Rank that 
if they thought proper to make advances beyond the 
limit fixed in L844, the government would bring in a 
Bill of Indemnity. " This announcement." savs Mr. 



The Finances. 25 

MacLeod, •" produced next morning the best effects. 
The Bank raised its rate to 10 per cent., but every- 
thing was calmed down, and though subsequent to this 
some other stoppages took place, yet the knowledge 
that the Bank had power to make advances on good 
securities, abated the panic." " The third announce- 
ment of the suspension of the Bank Act," says Mr. 
Gilbart, " operated, for the third time, like a charm ;" 
and in the course of five days the Bank of England 
made advances to the amount of over 12,000,000/. ! 

Our domestic experience has not been so pronounced 
and decisive as that of Great Britain; but in 1863, 
Mr. Cisco, Assistant Treasurer at New York, with the 
concurrence of Mr. Chase, extended relief, with most 
beneficial results, to the banks of that city at a very 
critical time; and notably in 1866, but also upon other 
occasions, Mr. McCulloch exercised the powers of his 
office as Secretary of the Treasury, as is well known, to 
avert monetary disasters. These instances, however, 
are not less illustrative, in kind and degree, of the 
efficacy of the principle of enlarged issues to fill the 
void in the circulation always attendant upon panic 
than those of England. 

Hard-Money and Panics. 
But we may learn another lesson from the experi- 
ences just recited, and it is this : That panics are not 
peculiar to our paper-money system, as has been al- 
leged by uncandid bullionists, any more than they are 
peculiar to a hard-money system. 1 So long as ninety- 

1 Mr. Gilbart says : " Although it be true that each monetary crisis 
is in large part produced by a distinct proximate cause, yet the primary 



26 The Finances. 

eight per cent, of the exchanges of a country proceed 
upon credit, as is the case in both Great Britain and 
the United States, just so long will financial panics 
recur with more or less violence and frequency. To 
prevent them entirely is out of the question ; how to 
lessen their violence and mitigate the evils and miseries 
they entail, should be the inquiry of the political econ- 
omist and the business of the statesman. 

Specie Payments. 
No sooner, however, was the panic under full head- 
way, than, in the very midst of the consternation and 
suffering it produced on all sides — except among those 
of large ready-money means — the clamour for an im- 
mediate return to specie payments grew largely in 
volume. They who made it were not many in number, 
nor did they represent the public sentiment (for public 
sentiment everywhere throughout the country was 
overwhelmingly against them), but they were able 

cause of each and all is inordinate speculation begotten of the lust of gold. 
Men are in baste to he rich. This is no new thing. It has been observ- 
able in all times and in all countries. But the fact is more patent now 
than ever. Men live, as they journey, at railroad pace. So long as ap- 
pearances can be kept up, they lay the Blattering unction to their souls 
that some lucky hit will make all right. Honesty gives place to expedi- 
ency. Shifts, evasions, trickery, undermine the moral sense and grow 
into confirmed habits. The shams of private life are transported into 
men's public business. To seem is to be. Existence is undervalued un- 
less men can grow to what they seem as respects wealth, that is : or, at 
least, can manage to make ' Brummagem lacquer' look like gold. Hence 
petty frauds develop into gigantic swindles. Covetousness. — a madden- 
ing desire to bound at once, say from competence to riches. — hurries the 
flies into the meshes cunningly woven for them, and the weak become 
the victims." Mr. Gilhart is writing of events that happened under a 
coin- paving system. — Principles and Practice of Banking, p. 295. 



The Finances. 27 

and audacious, and were supported by what Edmund 
Burke calls " the most dangerous of all parties, an ex- 
tensive discontented moneyed interest," and the leading 
journals of the country, in both parties, were in the 
hands or control of men of wealth, whose private for- 
tunes would be largely enhanced if specie payments could 
be restored. They declared that the panic was due to 
the existing currency system and was inseparable from 
it; that until specie payments were resumed the public 
oreditor was the victim of a fraud and an imposture, 
and that the national honour was therefore deeply con- 
cerned in immediate resumption ; that the depreciation 
of the currency was productive of great evils, because 
of the fluctuations in its value relatively to coin ; and 
that there could be no solid and enduring business pros- 
perity until the national currency and coin were at a 
permanent par. They quoted books of finance in 
support, of these allegations, and brought to bear in 
their favour every fact of history at their command ; 
but they banished out of sight equally important 
facts, as if adverse facts had no bearing upon the 
subject. Many leading members of the great political 
parties — chiefly the men of large property — joined in 
this hard-money crusade, and party conventions, Demo- 
cratic knd Republican, in several of the states have 
declared in the same direction. 

But the great body of the people are hostile to the 
heroic treatment of the currency question proposed by 
the bullionists ; not because they are irreconcilably 
opposed to a specie-paying system, for they are not, 
but because, with intuitive and most sagacious judg- 
ment, they clearly foresee that, in the present extra- 



28 Tin Finn nets. 

ordinary circumstances of the country, immediate re- 
sumption would be productive of extensive and even 
dangerous social and political calamities. 

Nevertheless, the allegations of the bullionists are 
of great importance, and if true ought to determine 
the people in their political action. 

Let Facts Speak. 
It has already been abundantly shown that panics 
are not peculiar to our currency system. 1 Between 

'In 1848 committees were appointed by the British House of Lords 

and also l«y the House of Commons to inquire into the commercial dis- 
tress of tlie preceding year. A large number of merchants and bankers 
were examined before both these committees, with substantially the same 
results so far as the testimony went. The Lords' committee made a re- 
port of great value and importance, in the course of which they 
announced these conclusions: — 

•• It is true that to those who may have expected that the Bank A.Ct 
of 1844 would effectually prevent a recurrence of cyclos of commercial 
excitement and depression, the contrast between the years 1845 and 1S47 
must produce grievous disappointment." (The reader will not have for- 
gotten that the aet here referred to was that of Sir Robert Peel, the pur- 
pose of which was to secure the convertibility of the hank-note under all 
circumstances, and to so regulate the paper circulation as that it could 
not. at any time, he greater than the circulation would be if composed 
exclusively of coin.) 

••To those who anticipated that the aet would put a check on improvi- 
dent speculation, the disappointment cannot be less, if reliance is to be 
placed (as the committee are confident it may) on the statement of the 
Governor oi' the Bank, and of other witnesses, thai speculations were 
never carried to such an enormous extent as in 1S46 and the beginning qt 
1847. 

•• If the act were relied on as a security against violent fluctuations in 
the value of money, the fallaciousness of such anticipation is conclusively 
proved by the fact that whilst the difference between the highest and 
lowest rate of discount was in the calamitous years 1837 and 1839 but 
:wo and a quarter to two and three-quarters per cent, the difference in 
}<A~i rose to six and three-quarters. 

" If it was contemplated that the number and extent of commercial 



The Finances. 29 

L857 and 1873 the American people were free from 
those destructive financial storms which almost from 
the beginning of the century to and including the 
former year, had swept the whole extent of the country 
in every decade. Under the monetary system which 
prevailed prior to the rebellion, it was not in the 
power either of the banks or of the Federal Treasury to 
afford efficient relief in seasons of pressure. But 



Failures would have been lessened, the deplorable narrative of the Gov- 
ernor of the Bank, recording the failure of thirty-three houses, compara- 
tively in large business, in London alone, to the amount of 8,129,000?. 
($40,645,000), is a conclusive reply. 

H If the enormous exteut to which railroad speculation has been 
carried, be considered as an evil to which a sound system of banking 
could have applied a, corrective, such a corrective has not been found in 
an act" (which tJie reader is reminded was considered by the hard-money 
men the final attainment of hard-money wisdom), "since the passing of 
which, during a period of three years, an increased railway capital of 
22 l.i K)0,000/. ($1,105,000,000) has been authorized to be raised by Parli- 
ament, and when the enormous sum of 7'>,390,000/. ($381,950,000) is 
stated, on high Qnancial authority, to have been actually expended on 
railways in two and a half years. 

" If the power of obtaining banking accommodation on moderate terms 
were considered to be promoted by the Act of 1844, it cannot be said 
that this important object has been attained, since it appears in evidence 
that in 1X47, in addition t<> nn interest of nine or ten per cent, a commis- 
sion was also frequently paid, raising the charge to ten, twenty, or thirty 
per cent, according to tin time which bills had to run. 

" The committee are fully aware that alternations of periods of commer- 
cial excitement and of discredit, of speculation and of collapse, are likely 
to arise under all systems of currency ; that it would be visionary to im- 
agine that they could he averted altogether, even if the circulation were 
exclusively metallic. But it is on this account that greater care should 
lie taken to avoid increasing an evil, perhaps inevitable, by ^any arbi- 
trary and artificial enactments.*' And the comihittee proposed that the 
act should be amended by the introduction of a " Discretionary Relaxing 
Power," to be exercised, however, only during a favourable exchange. To 
these general views, Mr. Tooke gives the sanction of his name and 
authority. See Tooke on Prices, vol. VI., p. 497, et seq. 



30 The Finances. 

during the war. with the resources of the present sys- 
tem at his command, Mr. Chase was able more than 
once (as I have already stated) to avert financial dis- 
asters ; and Mr. McCulloch afterward, conspicuously 
in 1866, followed his example. Neither Mr. Chase 
nor Mr. McCulloch could have rendered these great 
public services. — great public services. 1 say, and by 
no means the least important oi % their respective ad- 
ministrations — but for the adaptability of a paper cur- 
rency to meet sudden financial emergencies. 1 

The Public Creditor. 
But it is declared that the continued inconvertibility 
of legal tender notes is a fraud upon the public creditor, 
and therefore wounding to the national honour. If 
this were true, it would be a matter for the gravest 
consideration and the promptest redress in the power 
of the people to make. But it is not true. The 
bonded debt of the United States sells to-day in the 
markets o( the world at the par of American gold 
coin, and the public faith of the nation was. in 1869, 
solemnly pledged by Congress to the payment of that 
debt, principal and interest, in our current coin. So 

'"Whenever merchants have a want of confidence in each other. 
which disinclines them to deal on credit or to accept in payment each 
others' cheques, notes or hills, more money, whether it be paper or metal- 
lic, is in demand : and the advantage of a paper circulation, when estab- 
lished on correct principles, is, that this additional quantity can be pres- 
ently supplied without occasioning any variation in the value of the whole 
currenci/, compared with bullion or any other commodity : whereas, with 
a system of metallic currency, this additional quantity cannot be so read- 
ily supplied, and when it is finally supplied, the whole of the currency, 
as well as bullion, has acquired an increased value - ."' — Works of P. 
Rioardo, by J. R. McCulloch. page 399, 



The Finances. 31 

far there lias been no default in respect to that promise, 
and there will be none. No matter what party poli- 
ticians may resolve in party conventions, or partisan 
newspapers allege in times of controversy, it is at once 
an infamous falsehood and an infamous outrage to 
charge that any portion of the people, East or West, 
are in favour of repudiation, or of anything less than 
a fulfilment, in perfect good faith, of all the national 
obligations. But this fulfilment, in good faith, of all 
the national obligations, requires no sacrifice of the 
national justice. That is a false and fantastic devotion 
to the national honour which exacts a universal op- 
pression to serve the interest of the public creditor. 1 

It may truly be said, then, that so far as the in- 
terest-paying debt is concerned, the public creditor has 
no just ground of complaint. He receives, strictly in 
accordance with the Government agreement, in pay- 
ment of interest, the current coin of the Republic of the 
legal weight and fineness, and on maturity of the debt, 
the principal will be paid in the same way. When 
a demand is made that the value of the coin shall 
be augmented by ten or twenty or fifty, or even one 
per cent., a new contract is proposed rather than an 
honest compliance with the old one. 

1 "It is to the property of the citizen, and not to the demands of the 
creditor of the state, that the original faith of civil society is pledged. 
The claim of the citizen is prior in time, paramount in title, superior in 
equity. ***** The public, whether represented by a monarch or by 
a Senate, can pledge nothing but the public estate, and it can have no 
public estate except in what it derives from a just and proportioned im- 
position upon 'citizens at large. This is engaged, and nothing else can 
be engaged, to the public creditor." — Edmund Burke, " Reflections on 
the Revolution in France." 



The Finances. 

The drift of this is not difficult to be seen. Imme- 
diate resumption of specie payments would enormously 
enhance the value of our gold coin : in my judgment 
the contraction indispensable to enduring resumption, 
would depress prices, throughout • the whole range of 
commodities, thirty to fifty per cent., and this vast 
confiscation of the property of citizens, equally entitled 
to public protection with the public creditor, is deemed 
necessary, it seems, to support and preserve the na- 
tional honour ! 

It is impossible to deny that the position of the bill- 
holder is by no means so satisfactory as that of the 
bondholder. It must be admitted, however, that the 
bill-holder is not a public creditor in the distinct and 
emphatic sense in which the bond-holder is such. The 
bond-holder seeks the Government obligation, because 
the Government is the most convenient and responsible 
debtor within his reach. The engagement of the Gov- 
ernment, in this case, is clear and specific, particularly 
set forth in the bond, fixing time and place and the 
nature of the payment to be made, thus responding 
to the particular objects of the creditor, which are safety 
and profit. 

Is this true of the bill-holder ? It certainly is not 
true. If two hundred millions of United States notes 
pass daily between citizens in exchange of commodi- 
ties, probably not one of the ten or twenty millions 
of those who receive and pay them, thinks of the 
Government as his debtor, or has the remotest thought 
of demanding redemption of the notes in coin. Every 
one knows the " promise to pay " imprinted upon 
them to be conditional, and no one doubts their ulti- 



The Finances. 33 

mate redemption. The purpose of their issue is per- 
fectly understood ; they are intended to form, and do 
form, our current instrument of exchange ; their credit 
is established, their value sure and uniform, and they 
perform all the functions of money with as effective 
an energy as coin would if coin were the exclusive 
circulation. About this there is no shadow of doubt ; 
nor can there be any doubt that, if the whole United 
States notes and National Bank notes were reduced in 
volume to four hundred millions, they would be as 
valuable as four hundred millions of standard gold, 
though there might not be a single dollar of gold coin 
available for their redemption. That the currency is 
excessive may be admitted, but the business of the 
country has adjusted itself to the volume as it exists ; 
and prices would be just as high if the circulation were 
composed of eight hundred millions of gold dollars 
instead of eight hundred millions of paper ones. 

In this view of the case, it seems to me a mean and 
indefensible exaggeration to talk of " rag money," " na- 
tional bankruptcy," " violated national honour," " repu- 
diation," and the like. Such phrases confound all fair 
discussion, and lead us no single step nearer the truth. 
It is incumbent upon those who indulge this sort of 
declamation to prove that the existing currency system 
is attended by evils which a coin circulation would 
avert ; and this, I confidently allege, they cannot do. 
There is no evil attending upon it which, in kind and 
degree, has not attended upon the coin-paying system 
of Great Britain ; the only mixed-currency system in 
the world which operates automatically, as an exciu- 
3 



34 The Finances. 

sively metallic system would operate it' there were no 
paper notes for redemption. 

Our Currency Inimical to Sound Business. 
It is said, finally, that our paper-money is inimical 
to permanent business prosperity. Let facts speak, and 
they do not hear out this allegation. The most bril- 
liant period in the history of material progress in Great 
Britain was that during which inconvertible hank-notes 
formed the exclusive circulation oi' the empire. An 
average population of eleven and a hall' millions, living 
upon an island oi' L75,000 square miles of sea and 
land (with a total surface of 77,513,000 English acres, 
less than 46,000,000 ot* which is under cultivation at 
this very day), without one-half the industrial appli- 
ances oi' this time, raised and expended in a period of 
twenty-four years of war. — that is between 1 792 and 
IS lb inclusive — by loans and taxes, five THOUSAND 

FOUR HUNDRED AND TEN MILLIONS OF DOLLARS! (exclu- 

sive of debt at the close oi' the wars) besides during the 
same period more than doubling the national wealth! 
Between I Sol and L870, and inclusive of those years, 
notwithstanding the pressure ot' a most wasteful re- 
bellion during tive years oi' that time, the people oi' 
the United States y\ do not include in this any oi' the 
expenditures oi' the Confederate States) raised and 
expended by loans and taxes, folk thousand three 

HUNDRED AND F1FTV-ONF MILLIONS OF DOLLARS! (and this 

exclusiveof the public debt remaining at the end of 
the war), besides increasing the aggregate of the na- 
tional wealth from sixteen thousand millions in 1 v 
to twenty-five thousand millions in 1870. It is no 



The Finances. 35 

wonder that the people look back to that brilliant, 
■exciting and destructive period, with fascinated imag- 
ination. 

At a future time, I shall show by facts which are 
demonstrations, that between 1866 and September 
1873, when the panic broke loose in New York, the 
variations in the prices of commodities were no greater 
(though higher) in the United States under a " shock- 
ing bad" currency system than they were in England 
during the same period under a system which is held 
up as the greatest achievement of hard-money wisdom ! 

In a word, there is no function of hard-money which 
the current paper-money of the country does not per- 
form as promptly, as certainly and as safely as coin 
would if there were no paper-money. This refers to 
our domestic exchanges of course. 

All the same, gold and silver are the best money, 
though it is quite within the limits of human achieve- 
•ment that a paper-money system may ultimately be de- 
vised which will supersede the use of coin. I may quote 
in support of this thought, the words of an English 
economist of great and deserved distinction : " A well 
regulated paper currency," says David Ricardo, " is so 
great an improvement in commerce, that I should 
greatly regret if prejudice should induce us to return 
to a system of less utility. The introduction of the 
precious metals for the purposes of money may with 
truth be considered as one of the most important steps 
towards the improvement of commerce and the arts of 
civilized life; but it is no less true that, with the ad- 
vancement of knowledge and science, we discover that 
it would be another improvement to banish them 



36 Th( Finances. 

again from the employment to which, during a les; 
enlightened period, they had been so advantageously 

applied." 1 

Depreciation ami Fluctuation. 
But it is said that our currency is depreciated rela- 
tively to gold, and that it fluctuates in value. That 
it is depreciated no one can deny, but we must distin- 
guish between a true depreciation and one purely artifi- 
cial. The true depreciation is two to live per cent. : 
all further difference is due to that unwise ami inde- 
fensible policy oi' the Government whieh made the 
interest on the public debt payable in coin. This 
established a necessity for the compulsory presence in 
the country o( a stock of specie approximating in 
in amount to the sum required to pay interest on public 
debt in each year: and no one need be told that the 
pressure oi' this necessity has exerted a powerful action 
upon its price. Were this abnormal pressure removed, 
the excess of coin would go abroad in the natural course 
oi' trade, as more than a thousand millions have gone 
since L860 : and we should behold the curious specta- 
cle o( a reduced price with a diminished stock ! and 
at the same time, the real measure o( depreciation 
would be accurately ascertained. : 

l - Works of David Rioardo," hyJ. R. McCullooh, page 404. 

1 Bonamy Price, Professor of Political Economy in the University of 
Oxford (England), and a respectable authority in financial science, ar- 
rived in Now York in September last. A day or two afterwards ho was 
" interviewed" by a representative of the New York ZW&une. At the 
very outset of the interview Mr. Priee denounced our currency as 
•• shocking bad." Further on. lie was asked whether he considered the 
current premium on gold, as quoted in the street, to ^o a tolerably accurate 
measure of the depreciation oi legal tender notes. Mr. Price said he 



The Finances, 37 

It is said, also, that our paper-money fluctuates in 
value. So it does. But the same may be said of money 
in all commercial countries, and in no kingdom of the 
world more so than in England, where they have a 
monetary system which is the very darling of the 
genuine hard-money men. Since I860 there have 
been a hundred and fifty variations in Bank of England 
rates, and interest and commissions have been paid, 
by parties of undoubted solvency, ranging all the way 
from two and a half to twenty per cent. And it is 
utterly puerile to expect that a return to cash pay- 
ments will prevent fluctuations of money as great and 
as frequent as under the present system, and 1 doubt 
whether any man of candour and information does 
expect it. 

Specie Payments. 

Were it proved, however, a hundred times over, as 
probably it could be, that there is no evil attendant 
upon a well regulated paper-currency system which 
does not attend, both in kind and degree, upon a mixed- 
currency or even exclusively-metallic system, the de- 
mand for a return to specie payments would go on all 
the same. I do not deny that ultimately resumption is 
desirable. The reason is that gold and silver are true 
money: their value is everywhere, the world over. 
known and recognised, and as few artificial impedi- 
ments as possible should be put upon the intercourse 

was not aware of any circumstances to show that it was not. I cannot 
help thinking that it was questionable taste for Mr. Price thus to darken 
counsel without knowledge. A professor of political economy who un- 
dertakes to denounce tin' currency of the country as "shocking bad.'' 
ought at least to acquaint himself with all the facts necessary to form 
a sound judgment. 



38 The Finances. 

of mankind. " A Universal Money," if such a thing 
were attainable, would be a grander and more effective 
peace-maker than all the " International Congresses " 
and " Parliaments of Man" that could be assembled in 
Central Park. Nevertheless, in mere local effects, 
there is probably very little material difference between 
a well regulated paper-currency system and a mixed- 
currency. 

But there must be, according to the unconditional 
bullionists, no delay in resumption. The great work 
must begin at once. 



The Vital Question. 

" BolioM Leviathan ! ean'st thou put ;i ring in his nose or bore 
through his jaw with a buckle?" Job xl. 21. 

This, then, becomes the vital question. — By what 
means is resumption to be effected ? The answer is 
simple and brief: By Contraction; stern, unrelenting 
and persistent contraction. This is the infallible pro- 
cess and there is none other. All methods not based 
ujxm contraction ought to be entitled, "Plans to re- 
sume without resuming." They proceed upon the 
idea that a nominal resumption will answer the pur- 
pose ; but mere trickery wont do. We must have a 
stock oi' coin adequate to all demands. We must con- 
tract the currency till prices are depressed below the 
level of prices in Europe : when our commodities are 
cheaper than gold is dear and profitable in foreign 
countries, then foreign gold will tlow in upon us and 
the product o( our mines will remain at home. To 



The Finances. 39 

effect all this the natural tide of trade must be re- 
versed; a vast destruction of the property of innocent 
and unoffending citizens must take place, a frightful 
and wide-spread suffering be inflicted, crime and pauper- 
ism enormously increased, and the danger even of po- 
litical calamities incurred. There is no thoughtful 
citizen who will not view these consequences with a 
prefound apprehension ; and that they are almost cer- 
tain to follow upon excessive contraction reason and 
history alike attest. The experience of England, in a 
similar conjuncture, is important and conclusive. 

Susjiension of the Bank of England. 
You will recollect that the Bank of England sus- 
pended specie-payments, under the authority of an 
Order of the King's Council — subsequently approved 
by Parliament — in February 1797, and, so far as the 
convertibility of its notes was concerned, remained in 
suspension till the summer of 1821, a period of sub- 
stantially twenty-five years. During this long interval 
the circulation of the United Kingdom was composed 
wholly of inconvertible notes of the Bank of England 
and of the country banks. For two years after sus- 
pension, " the currency may be considered as having 
been at the strictest bullion level with the rest of the 
commercial world, or, if anything, at a somewhat 
higher value, as the exchange on Hamburg from 
January to March of 1799 was higher (lower) than it 
had been for any length of time before the suspen- 
sion." 1 In the fall of 1799 ."a combination of circum- 

1 Tooke's " History of Prices,'" Vol. I., p 240. The English method of 
computing the clearness or cheapness of foreign exchange is directly the 



i 1 The Finan g, 

stances arose,*' says Mr. Tooke, •* which entailed the 
ment of unusually large sums abroad," and the ex- 
changes on Hamburg fell (rose), and bills to a limited 
amount only wore available. The alternative was to 
send bullion, which was exported in large quantities, 
but up to September 1799 " the market price of stand- 
ard gold had continued at 3J. L7s, 6d per ounce, 
though the price of foreign gold in coin had been some- 
what higher, on account of its greater use as coin than 
as bullion. Hut in June 1800 the price of gold ex- 
perienced a sudden and extraordinary rise; it rose to 
i per ounce j silver rose also, and . : ._:i ex- 

changes fell '.v'.ou par. In January I SOI gold and 
silver had each risen Is, per ounce, and the exchange 
on Hamburg was a: 29*. 8cf., cing a depression of 14 
per cent, below par.'* 1 The increase in the Bank-: 

however, did not till up the void occasioned 
•\\ c\ •: of the precious metals ;' nevertheless, 
in the prices visions i place, coincident, I. 

ever, with a similar r> n the Continent. This 

facts led to an almost h liscussion of 

the " currency question." which, in time, grew U 
heated and virulent. The bullionists charged the - 
in prices I excess ' inconvertible B 

lently denied by th< 
wasting Ministry. Meantime, 
as t". - -a the difference between coin and 

A Suppos N different 

$h merchant 

MacLeod, U 



The Finances. 41 

paper grew wider, although between the years I so:; 

and 1808 it was no more than '11. 13s. 'Id. per eent. 
After 1808 it averaged, 





I'ri 


r ■(; 


fold. 


Difference fro 


Ill Mini I'li 




<£ 


s. 


d. 






In 1809 


4 


L0 


9 


lt)^ per 


cent. 


L810, .... 


4 


5 





»A 


" 


L811, .... 


4 


17 


1 


24* 


u 


L812, .... 


5 


1 


4 


30 


t( 


September to December 1812, 


5 


8 





384 


u 


In 1813, .... 


5 


G 


•> 


86A 


.1 


November 1812 to March 1813 


5 


10 





41 


" 


In 1814 


5 


1 


8 


30* 


(t 


L815, 


4 


12 


9 


L8| 


(1 


L816, .... 


4 








24 


(< 


October to December 181G, . 


3 


18 


6 


Under 1 


per cent. 


In 1817, .... 


4 








.24 per 


cent. . 


1818 


4 


1 


5 


• 5 


u 


1819 to February, . 


4 


3 





6* 


(1 


1820 


3 


17 


104 






L821, .... 








Par. 





Iii 1810 the famous Bullion Committee was appointed. 
It numbered among its members some of the most 
distinguished names in the Commons: among others 
those of Mr. Francis Horner (chairman), Mr. Spencer 
Perceval, Mr. Tierney, Mr. Parnell, Mr. Huskisson, 
Mr. Baring, Mr. Grenfell and Mr. Sheridan. Says 
Henry Dunning MacLeod, 1 "The witnesses examined 
before the Committee consisted of Bank directors, 
private bankers, general merchants, and independent 
witnesses. The directors of both the English and the 
Irish banks vehemently repudiated the idea that the 
Bank paper was depreciated; they equally maintained 
that it was the price of specie that had risen ; they 
both denied that the issues of their notes had any 

1 MacLeod. " Theory and Practice of Banking," Vol. II. p. 23. 



Tht Finances. 

effect upon the foreign exchanges, or were in ;mv way 
the cause of the high adverse exchange, and they both 
denied that a limitation of their issues would have the 
slightest effect in reducing the exchange to par. Thev 
both maintained that there could be no over-issue of 
their notes so long as thev were confined to the dis- 
count of paper of undoubted solidity founded upon 
real transactions/ 1 In a word, most of the witnesses 
examined before the Committee attributed the high 
price of gold to scarcity arising out of a great demand 
for use upon the Continent ; and if it be true, as it 
seems cannot reasonably be doubted, that the depre- 
ciation of our legal tenders is partly due to a necessity 
tor the compulsory presence in the country of a large 
stock of coin which would otherwise go abroad, it can 
hardly be doubted that, in like manner, the depreci- 
ation of English Hank-notes was in part occasioned by 
scarcity and government demand. 

Rut the conclusions and report of the Committee 
were opposed to the views of most of the witnesses 
examined before it. The Committee recommended a 
resumption of cash payments ; but admitted, at the 
same time, that this was an operation of the greatest 
delicacy, though they thought it could be accomplished 
in two years. 'The Parliament thought otherwise, how- 
ever, and rejected the proposition to return to specie 
pai ments in two years bv a decisive and even emphatic 
vote. 

The French Revolutionary and Napoleonic Wars 
were ended in 1815, and from thenceforward to the 
year 1819 the "Currency Question" was the overshad- 
owing topic of English discussion, until at length in 



The Finances. 43 

February of the latter year both Houses of Parlia- 
ment appointed Committees to inquire into the " State 
of the Bank/' and in April subsequent both Committees 
reported recommending an early resumption of cash 
payments. Upon the reports of these Committees 
Parliament took prompt action, and in May " Peel's 
bill" — so called beeause the resolutions for resumption 
were introduced into the Commons by Mr. Peel, after- 
wards the second Sir Robert Peel — was enacted into a 
law. Its provisions were these: 

1. The Aets then in force legalizing the Bank sus- 
pension were to be continued to the 1st of May 1823, 
when their operation was finally to cease. 

2. " That on and after the 1st of February and 
before the 1st of Oetober 1820, the Bank of England 
should be bound, on any person presenting an amount 
of their notes not less than of the value or price of 
60 ounces, to pay them on demand at the rate of 4L 
la. per ounce, in standard gold bullion stamped and 
assayed at the Mint. 

3. " That between the 1st of Oetober 1820 and the 
1st of May 1821, it should pay in a similar manner in 
gold bullion at the rate of 3?. 19s. 6c/. per ounce. 

4. " That between the 1st of May 1821 and the 1st 
of May 1823, the rate of the gold bullion should be 3/. 
1 T.s. 10ir7. per ounce. 

5. " During the period first above mentioned, it 
might pay in gold bullion at any rate less than 41. Is. 
and not less than 3/. 19s. Gc?. per ounce; in the second 
period at any rate less than 3/. 19s. 6c?. and not less 
than SI. 17s. 10i(/. upon giving three days' notice in 

• 



44 The Finances. 

the Gazette and specifying the rate; but after giving 
this notice the Bank was not again to raise the rate. 

6. " These payments were to be made in bars or 
ingots o( the weight of sixty ounces each, and the Bank 
might pay any fractional sum less than 40s. above 
that in the legal silver coin, 

7. "The trade in gold bullion and coin was declared 
entirely free and unrestrained." 1 

But it must not be supposed that there was no 
opposition to the policy of this enactment, for there 
was and o( a very powerful kind too. The Rank di- 
rectors protested against it, and submitted to the legis- 
lature their views ot' what the effects o( the aet must 
be in the existing commercial and monetary state of 
the country. They said they could not help thinking 
the measure one fraught with great risk and uncer- 
tainty; and that "they could not venture to advise 
an unrelenting continuance of pecuniary pressure upon 
the commercial world the consequences of which it was 
impossible for them to foresee or estimate ;" nor could 
they take the responsibility of countenancing a meas- 
ure in which, they said. " the whole community was 
so deeply involved, and which would possibly com- 
promise the universal interests of the empire in all tlw 
relation* of agriculture, manufactures, commerce and 
revenue" The merchants and bankers of London ami 
Bristol joined in a petition against it. which was pre- 
sented in the Commons by Sir Robert Peel, who en- 
treated the House to pause before the passage of a 
measure so destructive o( commercial interests and 
with them of every other interest in the country, and 

1 MacLeod, " Theory and Practice of Banking," 11. 74. 



The Fi//<u/c(s. 45 

io collect all possible information upon the subject. 
The petitioners said that in their opinion the measure 
would result in aforced, precipitate and highly injurious 
contraction of the currency, which would add greatly to 
increase the pressure of tin taxes, to lower tin vahu of 
oil land ami commercial property, seriously to <<[/'<<■/ 
and embarrass both public andprivate credit, to embar- 
rass (Hid reduce all the operations 0/ agriculture, manu- 
factures and commerce, and to t/troir out of employment 
a great proportion of the industrious ami labouring classes 
"f the community. 

On the other hand, the friends of the measure, and 
conspicuously Mr. Peel and Mr. Ricardo (the latter 
the distinguished political economist), denied that the 
resumption would be attended by evil consequences; 
and Mr. Ricardo declared that the "whole difficulty 
would be in raising the value of the currency three per 
cent." 

What Sir Archibald Alison says? 

••The effects of this extraordinary piece of legislation 
were soon apparent. The industry of the nation was 
speedily congealed, as a Sowing stream is by the severity 
of an Arctic winter. The alarm became as universal 
and widespread as confidence and activity had recently 
been. The country bankers, who had advanced largely 
on the stocks o\' goods imported, refused to continue 
their support to their customers, and they were forced to 
bring their stocks into the market. Prices in conse- 
quence fell rapidly ; that of cotton, in particular, sank 
in three months to half its former level. The country 
bankers' circulation was contracted by no less than 

1 " History ol' Europe," Second Series, vol. II. chap. X. p. 144-5, 
(Blackwood's duodecimo edition, MDCCCLXIV). 



46 The Finances. 

five millions sterling($25, 000, 000); and the entire circu- 
lation of England fell from $232,545,000 in 1818 to 
$174,385,000 in 1820, and in the succeeding year it 

sank as low as $142,757,000 

" The effects of this sadden and prodigious con- 
traction of the currency were soon apparent, and they 
rendered the next three years a period of ceaseless 
distress and suffering in the British Islands. The ac- 
commodation granted by bankers diminished so much, 
in consequence of the obligation laid upon them to pay 
in specie which was not to be got, that the paper under 
discount at the Bank of England, which in 1810 had 
been $115,000,000, and in 1815 not less than $103,- 
300,000, sank in 1820 to $23,360,000! and in 1821 
to $13,610,000 ! The effect upon prices was not less 
immediate or appalling. They declined in general, 
within six months, to half their former amount, and 
remained at that low level for the next three years. 
Distress was universal in the latter months of 1819, 
and that distrust and discouragement were felt in all 
branches of industry which are at once the forerunner 
and the cause of disaster." 

What the Bank and the Bankers did. 

The Bank of England and the country banks, in 
order to resume and sustain a condition of specie pay- 
ments, at once began a course of vigorous and necessary 
contraction, reduced their issues in a period of five 
years by nearly one-half of their whole amount, as 
the subjoined table will show : l 

1 Tooke's " History of Prices,'' cited by Sir A. Alison. I have con- 
verted English pounds into American dollars at the rate of live of the 
latter for one of the former. 



The Fincmces. 



47 



YEARS. 


HANK OF ENGLAND. 


COUNTRY BANKERS. 


TOTAL. 


1818 


$130,010,535 


$101,535,000 


$232,545,750 


1819 


126,263,450 


78,500,640 


204,770,090 


1820 


121,496,700 


52,881,225 


174,377,925 


1821 


101.470,5(10 


41,280,900 


142,757,400 


1822 


87,323,950 


42,408,100 


129,732,050 



The Bank of England reduced its private securities 
iVoiu thirty-two millions of dollars in 1819 to some- 
thing more than twelve millions in 1821 ; and this was 
the average reduction in discounts made by the London 
discount houses and the country bankers, and shows 
how extensively and calamitously the commerce and 
industries of the country were overwhelmed by the 
operation of the contraction. 

The Fall in Wages. 
"In all the great stations of the cotton manufacture, 
as Manchester, Glasgow, Paisley, the rate of wages has 
fallen on an average more than one-half." — Lord Lans- 
downe's speech, December 1st 1819. " It is not sur- 
prising that the Ministers alluded to the suffering 
which pervaded several branches of manufacturing in- 
dustry, for, from the papers laid before Parliament, it 
appeared that wages in the cotton manufacture had sunk 
a half within eight months, and in most other trades in 
the same proportion." — Sir Archibald Alison, History 
of Europe, Second Series, Chap. X. 

What Mr. Baring said. 
t: In looking at this question," — that is, the facts 



48 

growing out of the contraction of the currency, — "it is 
materia) to show what is the state of the country in 
this the sixth year of the peace. Petitions are coming 
in from all quarters, remonstrating against the state 
of suffering in which so many classes are involved, and 
none more than the agricultural cfass, When such is 
the state of the country in the sixth year of peace, and 
when all the idle stories about over-production and 
underconsumption, and such-like trash, have been 
swept away, it is natural to inquire into the state of a 
country placed in a situation without a parallel in any 
other nation or time. No country ever before pre- 
sented the continuance of so extraordinary a speetaele 
as that of living under a progressive increase in the 
value of money and decrease in the value of the 
duct - >ple. It appears clear that from 

peraiioi s currency, iw have loaded ours* 

a/y with an immense jmNic debt, but also trith an 
inert s bt between individual and individual, the 

which continues I ss upon the country, 
and to the continuance of which pressure no end 
be seen." 

What M • . wys 

•• We have already seen the fall s iced 

by the immense narrow the pa] 

distress, ruin and j which now took 

e were universal, affecting the great interests both 
land and trade: but especially g landk 

s, s ttle- 
ments - ; . the like, the effects were most 

marked and course. In hundreds 



The Finances, 49 

of oases, from the tremendous reduction which took 
place in the price of land which now look place, the 

estates hardy sold lor as much as would pay oil the 

mortgages; and the owners were stripped oi all and 
made beggars.'' 1 

'"A Financial, Monetary :i n< I Statistical History of England," by 
Thomas Doubleday, p. 271. Mr. Doubleday says further, in exemplifloa< 
i Mm of what in said In the text: " I was myself personally acquainted 

u ill e of ili«' viotims of this terrible measure. He was a school fellow, 

.'mil inherited b good fortune, made principally in the West Indies, On 
ooming of age, and settling with his guardians, li" found himself pos- 
sessed of fully forty thousand pounds; and with this he resolved to pur 
chase an estate, to marry, and to settle for life. He was a young man 
addioted ii> no vioe, of a fair understanding, and b most excellent heart) 
and was connected with friends high in rank and likely to afford him 
every proper assistance and advice. The estate was purohased, I believe, 
about the year 1812 or 1813, for eighty thousand pounds, one moiety of 
the purohase-money being borrowed on mortgage of the land bought. 
In 1822-3 he was compelled to part with the estate in order to pay off 
his mortgage and some arrears of interest: and when this was done h< 
wiih left without n. shilling, the estate bringing only half of its cost in 
18121 Th us, without iznprudenoe or faull of any kind, was Hiis amiable 
man, together with liis family, plunged in irretrievable and inevitable 
ruin, by the act of a legislature which ought to have protected both, and 
which was fully warned of the oonsequenoes of what it. was about to do : 
but whioh, in requital, chose to laugh those who warned to utter scorn 

My r lers must, not suppose that this was either an exaggerated or un- 

oommon case, <>n the contrary, the oountry teemed with similar 
examples, and on the commencement of the session of 1823, the tables 
of both Houses were loaded with petitions, detailing soenes of hardship 
and destitution appalling in the extreme. As a sample of the whole, I 
have selected one whioh most, fully exhibits the dreadful effects of this 
Infatuated measure upon the welfare and happiness of the community ; 
and of this petition I here insert as oomplete an abstract as I can frame. 
Thesubstanoe of this very extraordinary document was as follows. It, 

was presented to the C mone l>y Lord Folkstone, and to the Lords by 

Karl Stanhope. 

" It sets forth — 

"I. That the petitioner, having contributed both in purse and person to 
the maintenance of the state, had a right to expect protection of person 



50 The Finances. 

The Effect upon Prices. 
The distress was so great and universal that in 
1822, a motion was made in the House of Commons 

and property in return : but that, instead of this, lie is ruined by an act 
of the Parliament, 

" _. That he imputes no intuitional wrong-doing, but grievous error t > 
the Government; yet he hopes the Government will not change error 
into injustice by persevering in it. 

'' 3. That the petitioner's ruin, as well as that of thousands of other 
persons, arose from Peel's bill for returning to rash payments; but that 
few eases can exceed his in hardship. 

"4. That the petitioner and his father were wine merchants, and made 
a large fortune, with part of which, in 1811 and 1812, they bought land. 

"5. That they bought the estate oC Northaw, in Herefordshire, for 
62,0002, and laid out 10.000/. more in improvements, investing in all 
72.000/. 

• - 6. That in 1812 they bargained with John A. Trenchard, Doctor ol' 
Divinity, for the estate oi' Pontrylas. for which they agreed to give <>O,000/.. 
paying ,V>,V>/. as a deposit. That the title not being satisfactory the 
result was a suit at law. which was not decided until 1819, when judgment 
went against them, awarding a gross sum of 71,9572. 19s 5d. to Dr. 
Trenchard. being purchase-money and interest. 

"7. That in the meantime petitioners had experienced heavy losses 
iu trade, and could not pay this sum ; and. therefore, gave Dr. Trenchard 
a mortgage on hotli the estates of Northaw and Pontrylas for 65,0002. 

"8. That after 1819, when the suit ended, petitioner and his father 
paid ."KHHI/. in part of the debt, and 80002. interest up to 1821. 

" 9. That on the suit ending in 1819, they received up to 1821, out of 
the estate, for rent and wood. 34102. 

•'10. That in July L821, the two estates were offered tor sale, but 
would nut bring the sum for which they were mortgaged. 

" 11. That in 1821 petitioner and his father were bankrupts. 

" 12. That Dr. Trenchard then got possession of both estates, and gave 
notice to foreclost the mortgage. 

" 13. That petitioner and his father thus actually paid Trenchard 
18,5552., and have only received out of the estate 3410/.: and they are 
now about to lose both the estates of Pontrylas and Northaw ; the last 
of which cost 72.000/. 

" 14. That Trenchard, on the other hand, has received in cash 18,5552. 
with all the rents of Pontrylas from 1812 to 1819, and that he is now 



The Finances. 51 

for a committee to consider the effect of the " Act for 
Resumption on the Agriculture, Commerce and Manu- 

about to get the two estates, with all arrears of rent from February 1820 
in lieu of his debt of 60,000/. 

"15. That petitioner's assignees are praying the Court of Chancery 
not to allow this ; for that, if it be granted, the result will be that Dr. 
Trenchard will have received all the rents and profits of Pontrylas estate, 
except for two years, 1470/. for timber, 18,555/. in cash from the peti- 
tioner, and in addition to his own original estate of Pontrylas, he will 
also hare (jut the other estate of Northaic, which cost 72,000/. 

"16. That petitioner and his father had other estates in Middlesex, 
Essex, and Hampshire, which cost 36,0002., but have now been sold for 
12,000/. ! That by the depression in trade they became bankrupts. That 
petitioner's father died in 1822, of a broken heart, and that he is himself 
a ruined man, with seven children of his own, ten of his brother's, and 
seven of his sister's, all depending on him. 

'• 17. That petitioner, therefore, prays for an equitable adjustment of 
this and all similar contracts. 

" This petition was that of Charles Andrew Thompson, of Chiswick, in 
the county of Middlesex, and is certainly calculated to tear in pieces, 
almost, the heart of every just and sensible man that reads it. What 
effect it produced upon Peel, Ricardo, and the Houses I cannot say ; but 
the country throughout was in a state of deep agitation, and remonstrance 
after remonstrance poured in upon the legislature." 

In 1822 the number of land-owners in England was 165,000 ; in 1861, 
according to the census of that year, MO, 766 persons (15,131 men and 
15,635 women) were the owners of the whole land surface of England ! — 
that is, says Professor Kirk in his little volume called " Social Politics," 
" one land-holder to every 652 persons. That is, one human being has the 
power, if he so chooses, to deny space on the earth's surface to 652 of 
his fellow-men. This does not put the matter so strongly as it would 
stand if we had the means of showing in how few hands by far the 
largest portion of the soil is held. The matter was still worse in Ire- 
land, where 8412 in a population of 5,798,967 held the ownership of all 
the lands, while in Scotland it was even more deplorable than in Ireland ; 
2975 persons at that time, held all the lands of that country ; which was 
one land-owner to every 1030 other persons !" " Bi\t this is as noth- 
1711)," says Professor Kirk, " when we remember that about half of 
THE whole Kingdom is owned by not more than twelve persons!" 
Social Politics, pp. 35, 36. How this tremendous concentration of land 
in the hands of the few was brought about is in part explained by the 
extract from Mr. Doubleday's book. 



52 The Finances. 

factures of the Kingdom." In the course o( the debate 
upon that motion Mr. A.ttwood (the member for Bor- 
ough-Bridge) — the same unbelieving gentleman who 

had boon induced to withdraw from the House in 1S19 
that the vote for resumption might be unanimous — 
made a speech, in the course of which he said: •■ In 
the year ISIS the average price of wheat was 84*. per 

quarter; and if the present price he taken at 47s., that 
is a reduction on wheat of 37s., which is equal to a tall 
of to/, in everv 100/., or fortyfive per cent. The 
price of iron in the year ISIS appears to have been 
13J.J that price is now S/. per ton, and is equal to a 
reduction of about forty per cent. The price of cotton 
in ISIS was Is., and it has sunk to G</. per pound, 
which is a fall of fifty percent, on cotton. Wool in the 
year L818 sold for 2s. l</. which now - - r l>.l</.. and 
there is. therefore, in wool a tall of nearly fifty per 
cent. The fall that has taken place, therefore, since 
ISIS in iron, in cotton and in wool, is as great as the 
fall in wheat. These are the great staples oi com- 
merce, and the average o( the fall upon all three is 
forty-five per cent., being exactly the reduction in 
grain. This is recommended to the consideration of 
those who toll us o( overproduction and an excessive 
cultivation o( corn-land. Inn I refer also to a table 
compiled by Mr. Tooke. which contains a list of the 
principal articles of commerce ami manufactures, 
thirty in >iiu»!k>\ which exhibits the same fall of forty- 
fine per cent, in ail the articles except indigo, the price 
of which has been sustained, as I am informed, by 
circumstances o( an exceptional kind. The fall, there- 
fore, is not peculiar to the products of agriculture, but 



The Finances. 53 

Is universal and has embraced every article of industry 
and every article of commerce. 

"This fall of prices must have been produced by 
one of two cause's: either the quantity of all commo- 
dities has increased, or the quantity of all money has 
diminished. One of these must of necessity have 
occurred, for the proportion is altered. Arc we to 
believe that great changes have suddenly taken place 
in the productive powers of nature or the resources of 
art, so as to account for this sudden and universal fall 
in prices ? Is it likely that production in all the 
branches of industry, agricultural and manufacturing, 
would go on for three years constantly increasiny in the 
presence of a constantly diminishing price ? Evidently, 
it is not so. * * * 

" In the midst of this fall of prices, what operation 
in business could proceed without loss or ruin ? There 
has been no form in which the capital of the merchant 
none in which the capital of the manufacturer, could 
be invested without the half of it being sacrificed 
during this calamitous period. We have been thrown 
back upon a condition of society in which all industry 
and enterprise have been rendered pernicious or ruin- 
ous ; and where no property is safe unless hoarded in 
the shape of money or lent to others on a double se- 
curity." 

Denials. 

The friends of resumption denied that the great fall 
in prices was due to a contraction of the currency. 
They had vehemently insisted prior to the passage of 
Peel's bill, that excessive issues were the cause of high 
prices and refused to stand by the logic of that position 



54 The Finances. 

(which was of course the true one) by admitting that 
low prices must result from extensive contraction. 
The paper-money advocates stood upon a similar false 
ground ; they had refused to admit that expansion was 
the cause of depreciation and high prices, but were 
swift to charge that excessive contraction was the cause 
of low ones ! 

" Over-Production." 

The bullionists said that the prevailing distress was 
due to "over-production " and " under-consumption ; " 
phrases which Mr. Baring justly denounced as trash. 

" That a general reduction in the price of all com- 
modities," says Mr. Joplin, 1 " amounting to nearly 
one-half, should take place in three or four years from 
increased production, was inconsistent with all experi- 
ence ; and it would not only have been generally 
known as the cause had it been true, but it would 
have been felt as beneficial. If people had found 
themselves poorer in money they would have been 
richer in money's worth — in the necessaries and luxu- 
ries of life. 

"The idea, however, that things were cheaper from 
abundance alone was confined chiefly to speculative 
inquirers, and did not extend to producers. The 
agriculturists in particular, by whom excessive produc- 
tion would be more easily traced, had it occurred, 
were unable to account for the fall on any such princi- 
ple. 

" But those appearances which were unaccountable 
on the one principle were the natural result of the 

'"History and Analysis of the Currency Question, 1 ' by T. Joplin, 
p. 73. 



The Finances. 55 

other. If the fall was produced by a contraction of 
the currency it would become general and present the 
results which Mr. Attwood pointed out. Hence it was 
rendered clear by that gentleman that the fall did pro- 
ceed from the operation of the currency. His argu- 
ment was unanswered- and unanswerable." 

The Effect upon the Public Revenues. 
In the eight years between 1815 and 1821 (and 
those years inclusive) the British Exchequer applied in 
reduction of national debt $640,000,000; in the ten 
years succeeding only $245,000,000 were so applied ; 
and in the next ten years there was a deficiency in 
revenue and an increase in debt amounting to more 
than thirty millions of dollars. William Cobbett said 
that one effect of the resumption would be to make 
the national debt permanent; and fifty years of ex- 
perience seems to verify his prediction. 

The Political Effects. 
The political effects of the prevailing distress were 
extraordinary. Great meetings were held throughout 
England and Scotland during the whole of the summer 
of 1819 ; and on the 16th of August, 60,000 people— 
among them women and children — assembled at -Peter- 
loo near Manchester, and a collision took place between 
the crowd and the troops called there to preserve the 
peace, in which a number of persons were killed and 
many wounded. This affair created everywhere a 
prodigious excitement, and meetings were held at Bir- 
mingham and Leeds, in Westminster, York, Liverpool 
and Bristol, attended by great multitudes, who carried 



s 

vd with the word *• \ sei 

.. Klv ; and the 

rnment w > . Ued to res 

ores for the] - > public peace. In > 

the **i v - u -\ * was - the 

fl . :. «i as the inn: all the v 

v listers, and it - - - onrji through the 

con ard oe of dim of the 
sass s, W 

the - is parts 

this year (1820), .. . the 

- apprehended, A ge militar 
vras - alarming symptoms 

Sunday morning \ . - 5 S Archi- 

bald Uison, **a treas - and 

fer the streets 
S 5 and villages, in th? 

m am t o/u />n>r> unent calling on the pec 

- : from . all manufacture - 

tshops - otry 

equality 
s S s this proclaui - goed 

■• ■■ ■■ - ■ 

mediated sed ctories 

1 thedes s 

mxious - s news 

S :th ; the sounds of indus 
heard, and two hundred thousand persons in tin - a 
- 

j the mand - an unseen 



The I'imni ccs. 57 

ami :mi unknown power." The Government took 
prompt action in this serious conjuncture, and in the 
course <>f a few days assembled 5000 volunteers in 
Glasgow — of whom 2000 were horse — with eight guns. 
These preparations overawed the insurgents, and no 
dangerous outbreak occurred. Three <>l the ringlead- 
ers were executed, however, and seven or eight were 
transported. 

The Government, warned by these events, increased 
its precautions, and before the end <>f the year had 
augmented the volunteer force to 35,000 men. " With- 
out doubt," continues Sir A. Alison, "this powerful 
volunteer force, organized especially in the manufac- 
turing districts at this period, and the decisive demon- 
stration it afforded of moral and physical strength <>n 
the part <>l the Government, was the chief cause through 
which Great Britain escaped an alarming convulsion." 
This was done, however, at a very considerable ex- 
pense: a million and a half a year. 

Culmination <>/' the Distress. 

" But. the material distresses had increased and were 
increasing with a rapidity which outstripped all calcu- 
lation, and had now reached a. height which compelled 
investigation and threatened to bear down all opposi- 
tion. The great fall in the price of the whole articles 
of agricultural produce which had gone on without 

intermission from the monetary bill of L819, and had 
now (1822) reached fifty per cent, upon every product 
of rural labour, had spread at Length to every other 

species of manufacture. All, sharing in the influence 

of the same cause, exhibited the same effect. The 



58 The Finances. 

long continuance of the depression and its universal 
application to all articles of commerce, excluded the 
idea that it was owing to a glut in the market, or to 
any excess of trading in particular lines of business, 
and furnished a valuable commentary on the predic- 
tions of Mr. Ricardo and Mr. Peel that the change of 
prices could not by possibility exceed three per cent. 
The subject accordingly engaged the repeated and 
anxious consideration of both Houses of Parliament, 
and was made the topic of frequent and luminous 
debates of the highest interest and importance, and at 
length forced a change of the utmost moment in our 
monetary system." x 

"A Change of the Utmost Moment. 

Prior to the suspension of cash-payments by the 
Bank of England the Bank had not been allowed to 
issue notes of a less denomination than 5/. (or $25) 
just as, for a period after the United States supplied 
the currency of the country, the Federal Treasury was 
not allowed to issue notes of a less denomination than 
five dollars. But this limitation upon the Bank was 
attended with serious practical inconveniences, and 
was at length repealed and the Bank was permitted 
to issue notes as low as 1?. (or $5). The effect of this 
authorization was that very soon a large proportion of 
the circulation was in one-pound notes. By Peel's 
bill of 1819 the privilege of issuing these small notes 
was withdrawn both from the Bank of England and 
the country banks ; and it was the necessity of sup- 

1 " History of Europe," Second Series, Chapter X. 



The Finances. 59 

plying a large fund of coins to replace the small note 
circulation, thus driven out of existence, that was one 
great cause of the contraction of the currency. 

The act by which this requirement of Peel's bill of 
1819 was repealed was on the 2d of July 1822 intro- 
duced into Parliament by Lord Londonderry, 1 "who," 
said Sir James Graham, " did not treat the question as 
one of a fluctuation of prices, or want of means of con- 
sumption, or of superabundant harvest. Lord London- 
derry said plainly and directly, 'this is a question of 
currency ; the currency of the country is too contracted 
for its ivants and our business is to apply a remedy.' " 

Lord Londonderry's bill permitted the issue of one 
and two pound notes for a period of ten years longer, 
and made the one-pound notes of the Bank of England 
a legal tender everywhere except at the office of the 
Bank itself. " This Act," says Sir A. Alison, " coupled 
with the grant of 4,000, 000Z. Exchequer bills, which 
Government was authorized to issue in aid of the agri- 
cultural interest, had a surprising effect in restoring 
confidence and raising prices; and by doing so, it 
repealed so long as it continued in operation the most 
injurious parts of the Act of 1819." For — although 
the Bank of England did not avail of the privilege of 
the Act — the country banks issued the small notes 
profusely, and thus extensively and at once relieved 
the pressure upon the community, as was manifested 
by the prompt revival of industry and trade throughout 
the whole kingdom. 

1 A member of the then existing Cabinet. 



60 The Finances. 

The Conclusion of this Matter. 

These are, in as brief detail as it has been possible 
for me to compress them, the more important circum- 
stances attending upon the resumption of cash pay- 
ments by the Bank of England and the country banks 
of Great Britain in 1819-1821. They have a great 
interest for our people at this time, for they are types 
of the calamities 'which will surely result from prema- 
ture action in the direction of resumption among our- 
selves. The commercial and credit systems of Great 
Britain and the United States are so exactly identical 
in all important particulars and almost in minute 
detail, that there is no fact or consequence in English 
financial history which has not an important bearing 
upon our own action. 

Whether our rulers will profit by the disastrous 
experiences of Great Britain, remains to be seen : but 
I confidently predict, that the parti/ Democratic or Re- 
publican or any other whatever its name, which forces 
a resumption of specie payments prior to the practical 
extinction of the national debt, whether that be in ten 
years or thirty, will be trampled to death under the feet 
of the people. Let the events of the future approve or 
condemn me for saying this thing ! 

An Important Question. 

At what volume of paper circulation can specie pay- 
ments in the United States be safely resumed and 
sustained ? This is a question of the weightiest concern 
to every commercial and industrial interest in the 
country. 

There seems to be a pretty general concurrence 



The Finances. 61 

among writers upon finance that the coin provided for 
redemption should not be less than 33 per cent, of the 
circulating notes to be redeemed. But experience 
warns us that a coin reserve of 33 per cent, is not 
adequate to all the monetary exigencies to which com- 
mercial countries are subject. Three times since 1844 
the Bank of England has been upon the very verge 
of suspension, with a specie reserve approximating 
more nearly to one-half than to one-third of the note 
circulation ! and it is strictly within the range of pos- 
sibility, as experience proves, that a bank with an 
outstanding note circulation of one million of dollars, 
and a specie reserve of three-quarters of a million, and 
a deposit account of a million and a half, might be 
bankrupted without being called upon to redeem a 
thousand dollars of its circulating notes. On the 3d 
of December 1847 Mr. Francis Baring made a speech 
in the British Commons in the course of which he said, 
" That the amount of bullion in the Bank of England 
on the 12th of September 1846 was $81,770,000, and 
that on the 17th of April 1847 it was reduced to 
$46,650,000; being a diminution of $35,120,000 (or 
nearly one-half). Taking the same dates with respect 
to the circulation of notes it was found that on the 
1 2th of September the amount outstanding was 
$104,910,000, and on the 17th of April 1847 the 
amount outstanding was $106,240,000, being an in- 
crease of $1,230,000 !" From which it appeared that 
while the specie in the Bank had been reduced in 
amount over $35,000,000, the note circulation had 
increased nearly a million and a quarter ! the explana- 
tion of which was very simple and obvious, though 



62 The Finances. 

Mr. Baring did not hesitate to say that he had never 
entertained the idea that such a thing was possible. 

But if it be admitted that a coin reserve of 33 
per cent, is a sale one. the inquiry recurs at what 
volume of paper circulation can we resume and sustain 
a safe condition of specie payments. The present legal 
tender circulation is $382, 000,000 and the authorized 
National Bank circulation is 8354,000.000 ; added to 
these are about $40,000,000 of fractional currency : 
making a total of $776,000,000. It is obviously cer- 
tain that no resumption is possible upon so vast a 
superstructure of paper; and it is equally certain that 
we could not resume if the currency were reduced a 
hundred millions lower; for in November 1807 Mr. 
McCulloch had contracted it down to $088,000,000, and 
so far as the practicability of the thing was concerned 
we were as far from resumption then as we are now. 
Without multiplying words, we must reduce the paper 
circulation to a sum not in excess of that authorized 
to be issued by the National Banks, and' I do not for a 
moment believe, even if we should exhibit the fortitude 
necessary to resumption upon that relatively small 
amount of notes, that we could sustain it. The whole 
bank-note circulation of the British Empire was in 
1872 slightly over $218,000,000. and the metallic 
circulation was at the same time £*>'-0,000, 000 ; and 
vet, says Mr. Patterson, 1 " when the stock of gold in 
the Bank of England is at its ordinary sum (say about 
600.000,000), the export of ten or fifteen millions of 
gold suffices to produce a dearth of money and a serious 
commercial crisis." If, therefore, such serious conse- 

1 •• Scienoe o( Finance," p. 200. 



The Finances. 63 

quences are possible to result in a country where the 
whole note circulation is but $218,000,000, and the 
supply of the precious metals is so great as five hun- 
dred millions or more, what is to be apprehended in 
America where it is proposed to have a convertible 
note circulation of $354,000,000? But the example 
of England is not the only one which offers us warning; 
for Mr. Tooke has shown that in 1855 and 1856 the 
Bank of France resorted to extraordinary measures to 
sustain itself, even though its coin reserve was at no 
time less than one-third its circulation. The condition 
of the Bank in January 1854 was this — circulation 
$130,000,000 ; bullion $G0,000,000. Between this last 
named date and the 12th of May subsequent the bullion 
had increased to $80,000,000 with no change in the 
circulation. In October 1855 the note circulation still 
remaining at one hundred and thirty millions the 
bullion had fallen to $45,000,000 ; March 31st 1856 
the circulation had fallen to $125,000,000 and the 
bullion to $42,000,000. In October of the same year 
the sum of the bullion had fallen to $32,000,000 ; and 
meantime, between the 1st of July 1855 and the 11th 
of December 1856, the Bank had purchased and 
imported into France gold to the amount of $136,- 
000,000 ! at premiums amounting to over two mil- 
lions. During the whole period, although the paper 
circulation was substantially stationary, the specie 
procured by the novel means just recited was drawn 
from the vaults of the Bank and exported as rapidly 
as it was brought in ! and all this notwithstanding the 
well-known fact that the metallic circulation of the 
country at this very time was not less than five hun- 



M Tin Finances. 

dred millions. From which it is not difficult to see 
that it' the Bank had been subjected to a "run** or 
any even unusual demand for redemption ot' its circu- 
lating notes, in addition to the other demands made 
upon it. suspension would have become inevitable. 

"And, moreover.*' remarks Mr. Tooke, "the pro- 
ceedings (of the Bank of France in thus buying coin 
in and importing it from foreign countries) excited 
notice: and the directors ot' the Hank of England were 
not backward in protecting their own establishment) not 
men wing the rate of discount in order to render 

the Part- lion more costly; but also by adopting 

other precautions against the class of bills known or be- 
lieved to In- employed as a means of artificially with- 
drawing gold to the Hank of France." 

No doubt under our National Hanking system we 
might support at a coin level a larger note circulation 
than is possible either in France or in England, but it 
is not doubtful that SO vast a superstructure as 
1,000,000 of notes would require a selider founda- 
dation than $120,000,000 of specie. 

Hut if we admit that so improbable a thing may be, 
we create an extraordinary demand for $120,000,000 
of gold; 1 and as the fractional currency must also be 
replaced by small coins for the current "small change.'' 
we may estimate that the whole demand for gold and 
silver, within say three years, may be stated thus : 

1 tun a demand tor one hundred and twenty millions of gold. is. in 
aooordanoe with well-known laws, equivalent to a domain! tor twioe as 
great a sum. I assume also that when resumption is determined upon 
the period within whiob it is to bo aooomplished caniH t pro- 

tracted bovond throe years. 



The Finances. 65 

For redemption of notes $120,000,000 

In substitution for fractional currency, . . . 20,000,000 



Total $140,000,000 

No one will contend that we can safely provide a 
less sum than this in addition to the stock already in 
the country, which may be stated as not exceeding 
$100,000,000. 

What will be the eflect of a demand for one hundred 
and forty millions of gold coin or bullion within a 
period of three years? — for certainly, when we once 
begin the process of resumption it will have to be 
short and energetic in accomplishment if it is to be 
accomplished at all. I will attempt to show the effect 
by contrast, and I select the pig-iron interest of the 
country as the one best adapted to the purposes of my 
illustration : 

The whole product of pig iron in the United States 
in 1873 was 2,8G8,000 tons. The number of stacks 
in blast on the 1st of January 1874 was 410, and 
if this was the average number in blast during the 
preceding year, it would imply that the number of 
workmen emphtyed was forty-one thousand, reckoning 
100 men (including workers in the mines) as the 
average to each stack. The whole number of stacks 
in twenty-five states on the 31st of December last was 
662, with an estimated productive capacity of 4,500,000 
tons per year; and if all were in blast up to their 
supposed powers they would employ 66,000 workmen. 
The estimated value of the entire product for 1873 
was $118,000,000. 

Suppose now a demand should arise for an in- 
creased product of pig iron of a million and a quarter 
5 



66 The Finances. 

tons per annum within say three years and worth in 
the aggregate say $140,000,000 : what would be the 
effeet ? It would act as an instant stimulus not only 
to the pig-iron industry but there is no industry in all 
the land which would not feel its life-giving impulse. 
There would be no contraction of the currency but a 
rise in- the value of it even at its extended volume ; it 
would bring into active use all that portion of our circu- 
lation which is now hoarded and dormant ; it would 
give an instant activity to all our commerce ; the 
banker, the merchant, the carrier, the agriculturist, the 
labourer — there is no member of the society, no matter 
how humble his station, who would not feci the quick- 
ening and. beneficent influence of such a demand. It 
would be simply glorious : it would put half a million 
people to work, and the idleness and suffering of to-day 
would be transformed into industrious activity and re- 
joicing to-morrow, and there is not a human creature 
within the borders of the Republic who would not be 
happier, for it could not possibly inflict injury upon 
any one but would be a source of good to all. 

Let us suppose on the other hand an unrelenting 
demand within three years for one hundred and forty 
millions of gold and silver, or an average say of forty- 
five millions a year : what would be the effect of such 
a demand ? 

The answer to this question will depend upon the 
uses to which the metals are to be devoted. 

If the demand arise on the part of goldsmiths for 
converting them into manufactured articles, the effect 
would be a rise in their value and in their price at 
the same time that it would raise the value of our 



The Finances. 67 

currency. The reason is obvious. Every demand 
which has for its motive an additional industrial 
activity raises the value of money. 

But suppose a deficit in the gold-revenues of the 
Federal Treasury and a demand for forty-five millions 
of coin each year for three years for the payment of 
interest, say upon public debt: what would be t' e 
effect of a demand of this nature? Without attempt- 
ing to anticipate the measures the Government would 
probably adopt in order to procure the coin, I confine 
my inquiry to the effect such a demand would have 
upon the value of gold. No one will doubt, I think, 
that the known necessity of the Government to 
provide a hundred or more millions of coin in each 
year for the payment of interest on public debt exerts 
a powerful influence not only in sustaining a premium 
but in keeping it at a figure at least double what it 
would be if that necessity were removed. A demand 
for forty-five additional millions in each year would 
certainly augment the current premium anywhere 
from five to fifteen per cent. A demand for use as 
money would be essentially different from the effect of 
a like demand for its transformation into manufactured 
articles, and would not have so stimulating an influ- 
ence upon its value ; for the reason that in the first 
instance the gold would be wholly withdrawn from use 
as money, thereby raising the value of the whole mass 
remaining in circulation, while in the second it would 
only be temporarily diverted from its accustomed 
channels and would soon be returned into them. 

But in neither of these cases would there be any 
disturbance in the course or depreciation in the value 



68 The Finances. 

of our paper circulation ; on the contrary its activity 

would be increased and its value enhanced. 

Let as now consider the effect of a demand for gold 

to serve as a basis for a convertible bank-note circula- 
tion. You will allow me here to eall your attention 
to the most important consideration connected with 
this vitally important subject ami one which is per- 
sistently overlooked by the bullionists (I may say by 
their opponents also), ami yet its weight in the deter- 
mination o( the whole matter is paramount. 1 beg 
you carefully to observe, then, that this question ot" 
resumption is not one of a greater or less premium 
upon coin whether that premium be two per cent, or 
twenty; nor is it one of a merely "inconsiderable 
e\>.v<> of paper-notes." 1 But the true question is this : 

1 Ami hence the statements made by Professor Bonamy Price in 
Now York on the evening of the 30kh of November 1^74, that "the 
history ot" resumption of specie-payments in England shows that no 
large previous accumulation of gold will bo required for the operation " 
of resumption in tlu- United States, and that the same ••history of re- 
sumption in England and the probable actual state (what is a " probable 
actual state'*? of ttie American currency relative to the wants of the 
American people warrant the belief that the exeess of paper-notes is not. 
considerable and will n >t require a targe amount to be redeemed and 
Cancelled," art unsound. It might be well for Prof. Price to define 
what he means by " no large previous accumulation " and that " the 
exeess of paper-notes is not considerable." In point of fact the excels 
of paper-notes is tvrv considerable, as experience will infallibly demon- 
strate when the "operation of resumption" is a fact accomplished. It 
is four hundred millions or four hundred and fifty millions in 
relatively to the power of the country to resume and sustain specie 
payments. 

Prof. Price spoke also in commendation of the " Automatic Currency 
"Machine" in the Bank of England. Hut the best English authorities — 
and among these I name conspicuously Mr. Tooke and Mr. (Jilbart — 
denounce that automaton as a wretched piece of unwisdom. On page 
28 anu of this pamphlet will be found the statements of the Lords" Com- 



The Finances. 69 

What is the Volume of Bank or other Notes which 
the country can permanently sustain dpon a sim.' ii.- 
PAYING foundation? We must fix with an approxi- 
mate degree of certainty the amount of paper-notes 

which can at all times he relied upon as instantly con- 
vertible into coin. When we have fixed this limit 
we may safely say we have solved the question of re- 
sumption. Until we have fixed this limit we can 
safely say nothing of the sort. 

You have already seen that the banks of Great 
Britain with a paper circulation of only $218,000,000 
have been surrounded with extraordinary restrictions 
intended to secure the convertibility of their circula- 
ting notes under all circumstances, and that, notwith- 
standing the enormous metallic currency of tint Empire, 
the drain of a few millions is sufficient to excite a com- 
mercial crisis ; and you have seen also the remarkable 
measures adopted by the Bank of France in 1855 and 
1850 in order to support a note circulation of only 
$130,000,000. [On the 7th of April 1870 not long 
before the breaking out of the war between France 
and Germany the Bank of France had an outstanding 
note-circulation of $280,000,000 and held coin and 
bullion to the amount of §251,000,000. On the 5th 
of October 1871 (after the war was ended) the circu- 
lation of the Bank was $390,000,000 and the coin and 
bullion in its possession amounted to $125,000,000, 
and specie-payments were suspended. On the 23d 

mittee in 1H48 touching the practical working of that act, and any one 
very deeply interested in the matter, who has access to Mr. Tooke's 
'•History of Prices." will find in the fourth volume of that invaluable 
hook a complete exposition of the whole operations of Peel's bank 
scheme. 



70 The Finances. 

of October 1873 the note circulation was $598,000,000 
and the specie $145,000,000, and the Bank was still 
under suspension. On the 25th of June 1S74 the note 
circulation was reduced to $495,000,000 and the stock 
of specie increased to $235,000,000. But that "most 
impregnable organization of credit on a grand scale the 
world has ever seen," 1 with a specie reserve approxi- 
mating to nearly Jiffy per cent, of its circulating notes 
was not yet sufficiently impregnable to resume, 
although its whole liabilities for notes and deposits 
were but $580,000,000 while its means of payment 
were in specie $235,000,000, loans to the government 
$173,000,000 and private discounts $170,000,000: 
total $578,000,000. On the 1st of August last the 
circulating notes of' the Bank amounted to $510,- 
000,000 and its specie to $250,000,000. This is a 
very remarkable condition of affairs and illustrates 
that in France at any rate the question of specie- 
payments is not one of " a small previous accumu- 
lation of gold" nor yet of " an inconsiderable excess 
of paper-notes !"] It will not be thought dogmatic 
in view of these examples to repeat my strong convic- 
tion (which is warranted also upon the circumstances 
of our commerce, internal and external) that we can 
not support a convertible circulation of $354,000,000. 
My object at this place, however, is to arrive approxi- 
mately near the aggregate of contraction we must un- 
dergo before resumption can be effected. If it be con- 
ceded that a paper circulation of $354,000,000 can be 

1 New York Tribune July 1 3th 1SJ4. All these facts relating to the 
Bank of France are made up from three different articles that have: 
appeared in •'The Tribune." 



The Finances. 71 

sustained upon a specie foundation, and that a specie 
reserve of 33 per cent, is sufficient to sustain it, we 
come to inquire what effect a contraction of four hundred 
and twenty millions of dollars will /tare upon the desti- 
nies of the country ? But is it necessary to pursue an in- 
quiry based upon so tremendous a decrease in the cur- 
rent medium of exchange? The simple statement of 
this unavoidable preliminary to resumption involves all 
the consequences of a vastly contracted production, of 
an extensive and most disastrous fall in the prices of all 
commodities and of the universal wages of labour, of 
ships out of commission, mines closed, factories silent, 
storehouses deserted, lands un tilled, working men idle ; 
a decline in the public revenues while taxation is kept 
up or increased to meet deficiencies; the pressure of 
taxes and of debts between man and man doubled, — in 
a word suffering everywhere and prosperity nowhere. 
When prices under this accumulation of calamities and 
sufferings shall have fallen below the level of prices in 
Europe, then gold and silver will flow hither from 
foreign countries and the products of our own mines 
will stop west of the Atlantic Main. It may be even 
profitable for foreign bondholders to flood us with our 
own bonds, which will retard the time of resumption ; 
but sooner or later there will of course be an end of 
the agony. The bnnks meantime will hoard the pre- 
cious metals till they have accumulated a fund sufficient 
for resumption, — but long before all this happens, the 
party which confers upon the country the blessings of a 
convertible currency will be buried in the grave out of 
which there is no resurrection ! If I am sure of nothing 
else I am sure of this. 



"- The Finances. 

Now all this may be the merest declamation based 
upon the most unwarranted assumption, but it will be 
difficult to show that it is so. Dr. Johnson says that 
experience is the tost o( truth ami constantly over- 
throws men's theories, ami assuredly it' anything has 
been demonstrated by financial experience it is that a 
sound convertible note circulation of $350,000,000 is 
an absolute impossibility in any commercial country. 
It is the business of those who say that the question 
o( resumption is one " oi' a small previous accumula- 
tion oi' specie " and an " inconsiderable excess oi paper 
notes," to furnish to the people the grounds upon which 
they rest their faith. Let them quit the region of in- 
definite assertion and put themselves upon the founda- 
tion oi' facts, for "facts speak," and the question is too 
vital to warrant us in proceeding upon mere speculation. 
We must not cast anchor in the midst oi' the clouds. 



But 



But if what precedes is warranted upon fact, it 
would be the part oi' wisdom to pause and take account 
of our surroundings. Those who talk oi resumption, 
whether they be conductors o( public journals or 
members of Congress or "political economists" or 
party conventions, seem generally to concede that the 
operation must be effected so soon as can be done 
"without injury to the business interests of the coun- 
try." But there never will be a time when we can re- 
sume without more or less injury and suffering. The 
real business in hand is to fix upon that time when the 
necessary evils which must tlow from resumption can 
be reduced to the minimum, and when the people will 



The Finances. 73 

submit to them with patience because unaccompanied 
by a sense of public injustice. 

The First Step. 
In a pamphlet 1 of mine printed recently (although 
written nearly three years ago) I said that the pay- 
ment of the public debt was a policy commended alike 
by National Duty and by National Honour. The path 
to safe and permanent resumption lies exactly in this 
direction — the payment of the public debt. Aside from 
the obligation the country is under, upon general prin- 
ciples, to pay its debts, that obligation is doubly strong 
in view of the wide injustice resumption would inflict 
if effected before the public debts are substantially ex- 
tinguished. The reason is easily stated : In 18G0 the 
people of the United States supported all their govern- 
ments — federal, state and municipal — upon a taxation 
of less than two hundred millions of dollars, but in 
1870 the aggregate taxation was six hundred and 
ninety-one millions ! a difference of nearly five hundred 
millions of dollars : that is to say, more than one-ninth 
or between eleven and twelve per cent, of the whole 
income of the country is extracted from the people for 
the support of government and payment of interest on 
public debt! There is no reason to suppose that the 
taxes are less now than they were in 1870, but there 
is very solid ground for the belief that they are 
greater ; and they are exclusive of the support of 
churches, private charities and private schools; nor is 

1 "A Brief Account of the Finances and Paper-Money of the Revo 
lutionary War:" John Campbell & Son, publishers, 740 Sansom street, 
Philadelphia. 



T i The Final s, 

there the slightest ground for expectation that under a 
specie-paying system the taxes would be at all reduced 
in amount. What is certain is. that their pressure 
would be enormously increased — perhaps oven doubled. 

It seems very clear, then, that specie-payments 
cannot now be resumed without inflicting the most op- 
pressive injustice upon tax-pavers. 

The duty of paying our public debts cannot be too 
strongly urged. It is the point d'appui from which 
all operations towards specie-payments must diverge. 
Surely, when the pressure of the taxes is reduced from 
between eleven and twelve per cent, to four or live per 
cent., the loss and suffering incident to resumption will 
be immensely lessened, and the people will bear the 
hardships which the surgery of resumption will in- 
fallibly inflict with greater fortitude because unac- 
companied, as I have already said, with a sense o( 
public injustice and oppression. 

It is not worth while to enlarge upon the effects oC 
resumption upon debts o( private corporations and 
between man and man. It will be time enough to 
talk about them when they begin to be felt : and Con- 
gressional supporters o( specie-payments, who desire 
continued public service, will have lively times in ex- 
plaining to those whose suffrages they seek the subtle 
operations of ••over-production" and oi' " under-con- 
sumption." The people will perfectly understand the 
latter but will doubtless ask information respecting 
the former ! 



The Finances. 75 

What Ought to he Done. 
The continued depression of industry and commerce 
is due not to financial disorder but to financial uncer- 
tainty. The clamours of impracticable hard-money 
men and of impracticable inflationists are equally 
effective to retard the restoration of the confidence 
which is so necessary to the revival of credit. There is 
abundance of money for all our uses, and if resump- 
tion be now impossible on one hand inflation would be 
utterly impolitic and unwise on the other. The 
bottom difficulty lies here — That in the wretchedly 
unsettled state of our financial policy judicious men 
with money are afraid to lend and judicious men with- 
out money are afraid to borrow ; for an Act of Con- 
gress might ruin the security of the lender and over- 
whelm the enterprise of the borrower. This is indeed 
the fatal quality and defect of paper-money that it is 
the creature of the legislature and that it requires ex- 
traordinary courage and vigilance to confine it within 
legitimate bounds. But he is a slanderer of the people 
and of republican institutions who says that in 
America we lack the courage and the virtue necessary 
to restrain our paper issues within proper limits. The 
single and overwhelming want of the hour is simply 
A policy. Let Congress enact specie-payments if that 
be the road to certainty and prosperity ; or let the people 
be pledged that until the National Debt is reduced to 
$300,000,000 there shall be no legislation for resump- 
tion. Let us have an end to fruitless and damaging 
agitation. If the country could be assured that for a 
period of ten years there would be no increase in the 
volume of the currency and no legally-enforced de- 



76 The Finances. 

crease, industry would throb with a now and vigorous 
life; the banks and the money-lenders would open their 
coffers to the promotion of Legitimate enterprise, and 
we should soon soo what is so earnestly to be desired 
the labour of the country fully employed and the 
remembrance of past needless Bufferings washed out 
and forgotten in the midst of present contentment and 
prosperity. 



THE END. 



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1874. 



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